Tesla shares jump 20% after Elon Musk expects sales to rebound

Open Editor’s Digest for free

Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.

Tesla shares rose after the world’s largest electric car maker reported higher-than-expected quarterly profits while forecasting “slight growth” in deliveries this year and a big jump in 2025.

The performance represents a turnaround for Tesla, which has suffered a few disappointing quarters as concern spread about slowing global demand for electric cars. It’s also caught up in the divisive political activism of its CEO, Elon Musk, and a court battle to recover a $56 billion stock options package.

On Wednesday afternoon, Musk expected car sales to increase by 20 percent to 30 percent next year after cost cuts reduced current car prices, which in turn would stimulate demand.

He also pointed to improvements in self-driving technology and new products, including the self-driving Cybercab unveiled earlier this month. Musk also said that lower interest rates have reduced monthly financing payments and that has had a tangible impact on demand.

Tesla shares rose 20 percent on Thursday, adding more than $100 billion to its market value. That may provide some comfort to investors, given that shares are at half their peak in November 2021, although the group remains the world’s most valuable carmaker.

Adjusted net income for the third quarter rose 8 percent from a year ago to $2.5 billion, beating expectations of $2.1 billion, according to Deposit From a Texas based company. Revenue rose 8 percent to $25.2 billion, slightly below analysts’ average estimate of $25.4 billion.

The profit was driven by a 2 per cent increase in vehicle sales revenue – which contributes four-fifths of the group’s income – along with a 52 per cent jump in its energy generation and storage business and a 29 per cent increase in its services arm, which includes its charger network.

Operating expenses fell 6 percent to $2.3 billion after it cut a tenth of its workforce, about 14,000 jobs, earlier this year.

“Despite ongoing macroeconomic conditions, we expect slight growth in vehicle deliveries in 2024,” Tesla said. “Plans for new vehicles, including affordable models, remain on track to begin production in the first half of 2025.”

However, Musk said Tesla was not developing the long-awaited $25,000 “Model 2.”

“We are not creating a non-robotic model… a regular existence [$25,000] “The model is meaningless and completely irrelevant given what we believe,” he said.

“That’s pretty clear at this point [autonomy] “It is the future.”

Instead, Musk said Tesla is focusing on reducing the cost of current models. Its Cybercab costs about $25,000, when government electric vehicle incentives are discounted.

Musk has made a strategic pivot toward self-driving, artificial intelligence, and robotics, predicting that these technologies will soon become Tesla’s main revenue sources and drive up its valuation. He recently revealed a prototype of a new fleet of self-driving Cybercabs, which he hopes to produce before the beginning of 2027.

However, the lack of engineering or financial details at the colorful “We, Robot” event — held at a Los Angeles movie studio, where Tesla’s “Optimus” humanoid robots danced to Daft Punk tunes and served beer to attendees — disappointed analysts and investors. Shares fell 9 percent in the aftermath.

Third quarter data provided more optimism. Tesla said Cybertruck production achieved a positive gross margin for the first time — after years of production delays and recalls — and was the third best-selling electric vehicle in the United States after the Model Y and Model 3. The company added its electric “Semi” truck plant will begin production by the end of next year, the company added. Which Musk said there was “ridiculous demand” for.

Earlier this month, Tesla announced that deliveries rose 6.4 percent in the third quarter to 462,890 vehicles globally, boosted by Chinese sales that offset weak demand in Europe. It maintained its position as the largest electric car maker ahead of the Chinese company BYD.

Analysts on Wednesday also pointed to Tesla’s improved gross profit margin, which widened to 19.8 percent in the quarter from 17.9 percent in the same period last year.

The closely watched financial metric was hit by $739 million in revenue from regulatory credits, which it sells to other manufacturers who don’t meet emissions targets related to electric vehicle production. This was the second highest level after the record $890 million in the second quarter.

Tesla also provided an update on the number of Nvidia H100 GPU chips installed at its manufacturing plant in Texas that are used to train the AI ​​systems that power its self-driving technology, called FSD. It said 29,000 devices have been installed in a cluster at the Gigafactory, and this number is expected to rise to 50,000 by the end of October.

Musk sparked controversy because of his strong support for Republican presidential candidate Donald Trump. He donates $1 million a day to registered voters in swing states who sign a petition supporting freedom of expression and the right to bear arms.

In return, Trump has pledged to appoint Musk as head of the “Government Efficiency Division” that will make proposals to cut spending, bureaucracy and regulation, a position that could benefit his other companies, including SpaceX and the social network X. However, those political activities risk drawing the ire of Democratic candidate Kamala Harris if she wins.