Tesla Motors has faced a tumultuous year, witnessing a decline in profits during the first half. However, recent reports indicate a resurgence for the renowned car manufacturer. In the three months concluding in September, Tesla’s car sales increased by 2 percent, exceeding $20 billion, while the overall profit surged by 17 percent to reach $2.2 billion. This boost led to a 19 percent rise in stock prices during early trading on Thursday, bringing shares back to approximately their initial value at the start of the year.

Sales growth appears to be rebounding, profit margins are expanding, and investors are now focusing on Tesla’s forthcoming venture: the robotaxi, an autonomous vehicle designed without a steering wheel or pedals.

However, a significant portion of the elevated valuation of Tesla’s shares stems from commitments beyond its primary automotive business. It is estimated that most of its $764 billion market cap relies less on electric vehicle sales and more on its potential advancements in robotics, artificial intelligence, alongside its energy storage and generation sectors.

Tesla Vehicle Performance

During the third quarter, Tesla’s car sales recorded a 2 percent increase, contributing over $20 billion in revenue, largely due to a stronger performance in China, where the company competes with domestic rivals like BYD Auto. Notably, quarterly revenue from automotive regulatory credits reached an impressive $890 million, marking the second-highest total to date. These credits are sold to other automakers for meeting emissions regulations, representing pure profit for Tesla.

Shareholders were particularly encouraged by significant improvements in profit margins. Tesla achieved its lowest cost per vehicle at approximately $35,100, which allowed the operating profit margin to reach 10.8 percent. Furthermore, the Cybertruck, which had previously been incurring losses since its launch last November, reported a positive gross margin for the first time.

Elon Musk, Tesla’s CEO, has not established a specific target for sales increases this year but indicated that the company might achieve a vehicle growth rate of 20 to 30 percent by 2025. This would represent a notable recovery from the current year, in which deliveries have declined by about 6 percent over the first three quarters of 2024.

This comes even as the company seems to have retracted its aspirations for a much-anticipated $25,000 electric car. Instead, Tesla plans to introduce more affordable versions of its existing models, priced under $30,000 following subsidies, set to launch in the first half of 2025.

Tesla’s Autonomous Initiatives

Musk is actively promoting the view of Tesla not merely as a traditional automaker but as a leader in AI and analytics. The company plans to invest over $10 billion this year to expand its data centers.

This month, Musk unveiled two complete autonomous vehicles: the Cybercab, a gold two-seater that forgoes traditional controls, and the Robovan, designed to accommodate 20 passengers. The Cybercab is projected to retail for under $30,000, with production commencing by 2027.

Despite the enthusiasm surrounding these innovations, investor sentiment leans towards caution. Following Tesla’s “We, Robot” event, shares fell, reflecting concerns over the lack of detailed strategy or rollout plans for these new models. Recent insights from company leadership have not resolved these uncertainties.

Nonetheless, optimists believe Tesla’s robotaxi service could reshape its investment appeal. Musk envisions offering rides at 30 to 40 cents per mile, potentially dropping to 25 cents per mile at scale, a stark contrast to the $2 per mile typical of services like Uber and below the operational costs of personal vehicles.

In 2024, a fully autonomous version of Tesla’s driver-assistance software, termed “full self-driving” or FSD, is expected to launch. Initially available on a fleet of test vehicles, it will later be accessible for download by the broader Tesla user community.

However, Tesla is not the sole competitor in the autonomous vehicle marketplace, facing challenges from Waymo, Zoox (an Amazon subsidiary), and Cruise, the self-driving service developed by General Motors.

Additional regulatory hurdles could impede the widespread adoption of autonomous ride-hailing. Despite data suggesting self-driving vehicles are generally safer than human-operated ones, Tesla is currently under investigation by US federal safety regulators following incidents associated with its software.

Meanwhile, other sectors are driving growth for Tesla. The energy generation and storage division is the fastest-expanding segment, offering both residential and utility-scale battery solutions. This division has seen remarkable success, anticipating a growth rate of at least 75 percent in 2024, largely fueled by demand for its larger Megapack battery, which achieved a record gross margin of 20.5 percent in the third quarter.

Elon Musk’s Impact on Tesla

Elon Musk’s influence has been pivotal in Tesla’s achievements, but his substantial $56 billion compensation package sparked controversy earlier this year. His departure from the firm could incite unpredictable reactions among shareholders.

However, Musk’s leadership is not without its complications. He actively engages in social and political dialogues, notably aligning with Donald Trump during the US presidential campaign, which might polarize Tesla’s American customer base.

For the time being, investors seem willing to invest in Musk’s vision—the stock currently trades at a price-to-earnings growth (PEG) ratio of 6.7, significantly higher than other leading tech stocks and traditional automotive manufacturers. While Tesla is laying the foundations for future growth in promising sectors, advancements, particularly in the autonomous vehicle domain, are expected to be gradual and non-linear.

Advice Hold: A high valuation reflects Tesla’s leading market position and future growth potential.

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