Tesla Posts Fifth Straight Profit in Q3 with Record Revenue of $8.77 Billion

Tesla Inc, an American electric vehicle and clean energy company, reported a profit for the fifth consecutive time in the third quarter with record total revenue of $8.77 billion, largely driven by substantial growth in vehicle deliveries as well as growth in other businesses, sending its shares up over 5% in pre-market trading on Thursday.

The manufacturer of high-performance electric vehicles said its total revenue rose about 40% to an all-time high of $8.77 billion, up from $6.30 billion registered a year earlier. That was higher than the market expectations of $8.36 billion.

“Tesla will need to have demand to keep plants utilized but demand continues to not be a problem with third-quarter deliveries up 43.6% to 139,593. Free cash flow for the quarter was solid at about $1.4 billion, up about $1 billion year-over-year, but got help from $397 million in emission credit sales. We calculate Tesla’s pretax income at $158million excluding credit sales,” said David Whiston, sector strategist at Morningstar.

“Still, thanks to the September $5 billion equity offering, Tesla’s second of the year, cash at quarter-end was very strong at $14.5 billion and management guided for 2021 and 2022 capital expenditure to be incrementally higher (we assume from 2020 levels) by $2 billion to $2.5 billion. We don’t see Tesla in a liquidity crisis next year and if it was running short of funds, we think it can easily raise capital. Possible inclusion to the S&P 500 index remains a catalyst to the stock in our opinion, but we do not think it’s a sure thing due to credit sales and Tesla’s small profits for a company with its large market capitalization.”

Excluding items, Tesla registered a profit of 76 cents per share. It reported net income of $331 million, or $874 million excluding stock-based compensation awards given to Musk, Reuters reported.

Tesla said its revenue from the sale of regulatory credits were $397 million and without that the electric car maker would have been difficult to see a profitable quarter.

Tesla shares closed 0.17% higher at $422.64 on Wednesday and rose over 5% in pre-market trading on Thursday. The stock is up over 400% so far this year.

Tesla Stock Price Forecast

Thirty equity analysts forecast the average price in 12 months at $335.54 with a high forecast of $578.00 and a low forecast of $19.00. The average price target represents a -20.61% decrease from the last price of $422.64. From those 30 equity analysts, even rated “Buy”, thirteen rated “Hold” and ten rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $333 with a high of $716 under a bull scenario and $108 under the worst-case scenario. Tesla received a $450 price objective from analysts at Goldman Sachs Group. The firm currently has a “neutral” rating on the electric vehicle producer’s stock.

Several other analysts have also recently commented on the stock. Independent Research reiterated a “sell” rating and set a $114.00 price target on shares of Tesla in September. Citigroup lifted their price target to $117 from $110 and gave the company a “sell” rating. JMP Securities cut Tesla from an “outperform” rating to a “market perform” rating. At last, New Street Research upgraded Tesla from a “neutral” rating to a “buy” rating and set a $578.00 target price.

Analyst Comments

“We are positive on Tesla’s leadership across: EVs, Batteries & FSD and see an opportunity for TSLA to further penetrate these key TAMs. Why not OW? At its current valuation, we believe the market has already discounted a large part of Tesla’s growth potential. Further, competition in the EV market continues to intensify from traditional OEMs, startups & mega-tech firms,” said Adam Jonas, equity analyst at Morgan Stanley.

“We also continue to harbour concerns over the long-term efficacy of an auto business commercializing advanced tech that is economically sensitive within China. As Tesla expands production, they will likely need to raise more capital. While there is a strong appetite in the short-term, it will dilute shareholders in the long run,” Jonas added.

Upside and Downside Risks

Upside: 1) Tesla China profitability surprises to the upside. 2) Europe Giga success. 3) Model Y margin accretion. 4) Software margin accretion. 5) Tesla the Supplier? 6) Cybertruck – highlighted by Morgan Stanley.

Downside: 1) May never make the leap to a shared mobility model, limiting itself to niche OEM status. 2) Execution risk / COVID-19. 3) Openness of capital markets to funding Tesla’s strategic ambitions. 4) Large & better-capitalized technology firms emerging as competitors.

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