On Monday, Wolfe Research maintained its Peerperform rating on Tesla (NASDAQ:TSLA) shares, with the analyst noting that despite the stock's significant rise following strong third-quarter results, investors remain skeptical about some of the management's forecasts. Tesla's shares have climbed nearly 25% since the company delivered a confident message alongside its Q3 performance.
The skepticism from investors centers on Tesla's forecast that deliveries could increase by 20%-30% in 2025, which would likely require a boost in sales of the Model 3 and Model Y. Wolfe Research highlighted that some investors might be overlooking Tesla's plans to launch multiple new models in 2025, including various lower-cost vehicles with a starting price under $30,000 after incentives and an entry into new market segments.
Wolfe Research pointed out that execution will be crucial, and while it is wise to remain cautious, the firm's 2025 forecast assumes approximately 2.08 million deliveries, representing a year-over-year increase of about 15%, and initially modest gross margins. The analyst also mentioned that filling out the existing production capacity of 3 million units—currently at a 2 million production rate—is key to maintaining the stock's momentum.
Another significant factor for Tesla's stock is the development of its Full Self-Driving (FSD) technology. Tesla expects to surpass human levels of driving performance by the second or third quarter of 2025. This will involve several updates to the FSD software, with the first major update (version 13) expected soon. Achieving human-level performance would mean reaching 670,000 miles per critical intervention.
Wolfe Research updated its model for Tesla's earnings per share (EPS), raising its 2024 and 2025 EPS estimates to $2.37 and $3.26, up from $2.24 and $3.25, respectively. The firm suggests that successful execution across Tesla's core businesses could lead to an EPS of approximately $6.70 by 2027 and a stock price around $240.
Moreover, if Tesla launches a commercial autonomous vehicle (AV) service, this could significantly increase its valuation, with potential revenues reaching at least $50 billion by 2035 and EBITDA margins around 60%.
In other recent news, Tesla reported strong third-quarter earnings, surpassing estimates with earnings per share of $0.72. Canaccord Genuity and Deutsche Bank (ETR:DBKGn) have both maintained a Buy rating on Tesla, with Canaccord Genuity raising the price target to $298.00 and Deutsche Bank setting a target of $295.00.
These adjustments reflect confidence in Tesla's future earnings potential and its initiatives in electric vehicles, artificial intelligence, and robotics. However, Bernstein SocGen Group has maintained its Underperform rating, questioning the sustainability of Tesla's margins and the future growth prospects.
The 5th U.S. Circuit Court of Appeals recently overturned an order requiring Tesla CEO Elon Musk to delete a 2018 tweet, ruling it infringed upon his First Amendment rights. The court also directed the National Labor Relations Board to reevaluate its directive that Tesla must rehire a pro-union employee who had been terminated. These are some of the recent developments involving Tesla.
Tesla has also benefited significantly from the Inflation Reduction Act, leveraging its tax breaks to invest in clean energy technologies. This is a testament to Tesla's commitment to expanding its product offerings and capitalizing on growth opportunities in the clean energy sector.
InvestingPro Insights
Tesla's recent stock performance aligns with InvestingPro data, which shows a significant 23% return over the last week and a strong 22.47% return over the past three months. This surge has brought the stock price to 99.33% of its 52-week high, reflecting the market's positive reaction to Tesla's Q3 results and future projections.
InvestingPro Tips highlight that 20 analysts have revised their earnings upwards for the upcoming period, suggesting growing confidence in Tesla's near-term performance. This optimism is further supported by the company's strong financial position, with InvestingPro noting that Tesla holds more cash than debt on its balance sheet and has liquid assets exceeding short-term obligations.
However, investors should be aware that Tesla is trading at a high P/E ratio of 71.41, which is elevated relative to its near-term earnings growth. This valuation metric underscores the importance of Tesla executing on its ambitious plans, including the launch of new models and advancements in FSD technology, to justify its current market valuation.
For those seeking a deeper analysis, InvestingPro offers 22 additional tips on Tesla, providing a comprehensive view of the company's financial health and market position.
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