3 Top Things to Know From Tesla’s Q3 2024 Blowout Earnings Beat

TradingKeyOct 24, 2024 9:54 AM

TradingKey - For electric vehicle (EV) lovers, there’s nothing more recognisable than the Tesla Inc (NASDAQ: TSLA) brand. The company, run by the charismatic and divisive CEO Elon Musk, has managed to successfully scale up its production of EVs by focusing on creating an in-house and vertically-integrated supply chain.

As a result, Tesla stock has soared as it became extremely profitable a few years ago. According to Musk himself, Tesla nearly went bankrupt as it was ramping up its Model 3 production from 2017-2019. That’s all history now as Tesla’s share price has skyrocketed around 880% in the past five years.

However, with increased global competition from Chinese EV manufacturers – like BYD and NIO – investors have questions around Tesla’s profitability in the short to medium term.

The company gave investors an opportunity to look under the hood as it reported its latest Q3 2024 results on Wednesday (23 October), after the market close. Tesla easily beat the market’s expectations with some blowout numbers. Here are the top three takeaways for investors from Tesla’s latest results.

1.Biggest quarterly profit in over a year

Tesla revealed that it generated net income of US$2.17 billion for Q3 2024, up close to 18% year-on-year versus the US$1.85 billion in net income for Q3 2023. That was its biggest quarterly profit in more than a year and these positive results were down to positive sales of its Cybertruck, higher overall vehicle deliveries for the quarter, and higher revenue from regulatory credits.

The company’s pick-up EV achieved a positive gross margin for the first time, according to Tesla’s earnings release. Tesla’s Full Self-Driving (FSD) supervised system, its “autopilot” autonomous feature for its EVs, contributed around US$326 million in revenue. The company’s overall revenue for Q3 2024 was US$25.18 billion, up 8% year-on-year.

Tesla’s operating cash flow also saw a big boost, up 89% year-on-year to US$6.26 billion while the firm’s free cash flow also soared to US$2.74 billion for the quarter – up 223% from the same period last year..

Tesla’s key quarterly metrics – Q4 2021 to Q3 2024

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Source: Tesla Q3 2024 earnings presentation

2.Vehicle deliveries growth in range of 20-30% in 2025

On the earnings call, CEO Musk said that his best guess is that Tesla’s vehicle growth will reach 20% to 30% in 2025 due to lower cost vehicles and the advent of autonomy. That’s well ahead of what analysts were expecting, with an average expectation of 15% delivery growth for Tesla in 2025.

Furthermore, Musk said the company is hoping to offer driverless ride-hailing cars as early as 2025 in both Texas and California. That should be driven in part by its Cybercabs, with Musk projecting Tesla will be producing 2 million of a year eventually. Interestingly, shares of Uber Technologies (NYSE: UBER) and Lyft Inc (NASDAQ: LYFT), two big ride-hailing platforms, both fell in after-hours trading following Tesla’s earnings release.

Tesla also stated in its release that it will be looking to release more “affordable” vehicle options in the first half of 2025, with the autonomous Cybercab starting at around US$30,000. Musk dismissed a regular EV, costing US$25,000 or less, as “pointless and that could perhaps disappoint some investors who wanted to see a more mass-market offering from the EV carmaker.

3.Higher-than-expected margins and solid cash pile

As with any business, the focus on margins (both gross and operating) is an important factor. For Tesla’s latest quarter, its Q3 2024 automotive gross margin (ex-regulatory credits) was 17.1% and came in way ahead of the previous quarter’s 14.6% automotive gross margin. Meanwhile, total gross margin was 19.8%, up 195 basis points (bps) from the 17.9% gross margin in Q3 2023.

Similarly, operating margin saw an improvement with operating margin improving 323 bps to 10.8% in Q3 2024, up from the 7.6% in the same period last year. Profitability margins also improved with Tesla’s adjusted EBITDA margin coming in at 18.5%, a significant improvement from the 16.1% in Q3 2023.

Tesla’s cash pile improved as its cash, cash equivalents and investments sat at US$33.65 billion as of the end of the quarter, up 29% from the US$26 billion cash pile it had as of the end of Q3 2023.

Beating low expectations

With low expectations from investors headed into the earnings, it was unsurprising to see Tesla’s share price pop 12% in after-hours trading. Before earnings, Tesla shares were down 14% so far in 2024 and had also endured a terrible October, with its shares falling around 18% from 1-23 October on the back of the disappointing Cybercab/Robotaxi event.

For investors willing to look past the short-term uncertainty of vehicle deliveries, Tesla’s latest earnings suggest it’s still performing extremely well while it also has additional growth levers like energy storage and the growth of the Cybercab/Cybertruck vehicles.

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