Why Tesla Stock May Rise Even More After Third-Quarter Results

Tesla TSLA Shares are up nearly 20% since the Q3 report in late October and the rally could continue.

With a Zacks Rank #1 (Strong Buy), Tesla stock is gaining momentum on positive earnings estimate revisions.

As analysts begin to upgrade their earnings outlook for the electric vehicle leader, investor sentiment has also turned thanks to the success of Tesla's Cybertruck.

Elon Musk's optimistic outlook for fiscal 2025 has also played a role in Tesla's recent rally. Until then, the Tesla boss expects the company's vehicle growth to be between 20 and 30% next year.

Additionally, Tesla has benefited from regulatory credits that have helped boost its profit margins while also seeing impressive expansion of its energy storage business.

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To the delight of investors, Tesla announced that its Cybertruck production increased compared to the previous quarter and achieved a positive gross margin for the first time in the third quarter. Even better, Tesla said the Cybertruck is the third best-selling electric vehicle in the U.S., behind its Model Y and Model 3 series.

Tesla increased its AI computing training by 75% in the last quarter as its artificial intelligence prospects are in the works. Tesla's AI software and hardware is being implemented to improve the safety and convenience of its autonomous or Full Self-Driving (FSD) features.

Tesla reported a total of over 2 billion miles driven with monitored FSD in the third quarter. Tesla's FSD monitored system further increased autonomous vehicle capacity and brought in $326 million in sales, largely driven by the feature added in the Cybertruck.

Image source: Tesla Investor Relations

Key to Tesla's post-earnings recovery was increased profitability: Net income rose 17% to $2.17 billion in the third quarter, compared to $1.85 billion in the same quarter.

This resulted in adjusted earnings of $0.72 per share compared to earnings per share of $0.66 in the third quarter of 2023. Tesla's net income was boosted by $739 million in automotive regulatory credits. Dollar increased. The regulatory credits were part of the Inflation Reduction Act, which includes provisions for zero-emission vehicle (ZEV) manufacturers.

Notably, Tesla's fiscal 2024 earnings estimate revisions have increased 8% over the past 30 days, from forecasts of $2.25 per share to $2.45 per share. Additionally, FY25 EPS estimates have increased 4% from last month, with forecasts now at $3.18 per share.

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Because of Tesla's regulatory advantages, the electric vehicle leader remains in the best position to make profits by selling its electric vehicle manufacturer credits to traditional automakers, which acquire them to comply with emissions regulations.

The story continues

Tesla Energy's growth is equally fascinating. Tesla's energy revenue, which revolves around installing solar batteries for homes and storage facilities, rose 52% to $2.4 billion in the third quarter, compared with $1.55 billion in the year-ago quarter.

Also notable for Tesla's strong management is that the company achieved a record free cash flow of $2.7 billion in the third quarter, as shown in the quarterly chart below. Tesla's operating cash flow also reached a high of $6.3 billion.

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It's easy to see how Tesla's operations are attracting investors again. However, it wouldn't be a surprise to see Tesla stock continue to rise given the trend of positive earnings estimate revisions that are starting to correlate with Elon Musk's optimistic outlook for FY25.

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