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The world's most valuable automobile company, Tesla (TSLA), polarizes the investing community like no other stock. Spearheaded by its charismatic CEO, Elon Musk, the leader in electric vehicles (EVs) has amassed a cult-like following, partly due to Musk's leadership and partly due to its disruptive developments in several fields, such as full self-driving (FSD), artificial intelligence (AI), and robotics.
However, many skeptics remain leery of the company's ability to fulfill its ambitions and Musk's volatile way of working, along with the stock's premium valuation. In the current environment, Musk's decision to align himself with Republican presidential candidate and former POTUS Donald Trump has only added to the debate around Tesla and its CEO.
Amid these deeply divided views about the company, newly adopted insider selling plans to unload a significant chunk of Tesla shares, totaling about 1.13 million, have added a new wrinkle to the debate. Notably, the insiders who adopted the Rule 10b5-1 selling plans include such noteworthy names as Elon's brother Kimbal Musk and Tesla Chair Robyn Denholm, and the combined selling would be close to $300 million if the plans are carried out to completion.
Although news of the planned insider sales may set off alarm bells in some quarters, should investors panic over the news? Here's a closer look at Tesla's long-term prospects.
About Tesla Stock
Founded in 2003, Tesla (TSLA) designs, manufactures, and sells electric vehicles, energy storage solutions, and solar products. Over the years, the company has forayed into robotics and artificial intelligence as well.
This has led to impressive long-term growth for TSLA. The stock has been a multi-bagger since its listing in 2010, rocketing 20,175%, with the shares up more than 1,000% in just the past five years. The company commands a massive market cap of $833 billion - which suggests that planned insider sales totaling $300 million, carried out over a regular schedule, are unlikely to put a major dent in the stock's momentum.
However, Tesla shares have disappointed in 2024, rising just 5.3% on a YTD basis amid broader industry woes, including steady pressure on margins as the company has relied on price cuts to incentivize sales.
Tesla Spikes on Impressive Q3 Earnings
After four consecutive quarters of missing bottom-line estimates, Tesla's earnings came in ahead of Wall Street's expectations in the third quarter - and in fact, the shares had their best day in over a decade following the results.
In Q3, Tesla's revenues came in at $25.2 billion, indicating yearly growth of 8%, as the key segments of Automotive (+2% YoY, $20 billion) Energy Generation (+52% YoY, $2.4 billion) and Services (+29% YoY, $2.8 billion) all increased revenues from the previous year. Q3 EPS went up by 9% in the same period to $0.72, comfortably outpacing the consensus estimate of $0.59.
Notably, net cash from operating activities almost doubled from the prior year to $6.26 billion, versus $3.31 billion in the year-ago period. Free cash flow growth was even better, up 223% from the prior year to come in at $2.7 billion. Overall, the company ended the quarter with a healthy cash balance of $33.6 billion, much higher than its short-term debt levels of $2.3 billion.
Apart from the EPS and revenue beat, what really led to the 21% spike in Tesla stock after its Q3 results were its operational numbers. After two consecutive quarters of production declines, Tesla's total production for Q3 was at 469,796 vehicles, up 9% from the previous year. Total deliveries also went up by 6% on a YoY basis to 462,890 vehicles. Supercharger stations at the end of the quarter stood at 6,706, compared to 5,595 in the previous year. Plus, operating margin jumped to 10.8% of sales in Q3, showing healthy growth YoY.
More Than Just a Car Company
Tesla continues to dominate the EV market, holding around 51% of the U.S. market share by the end of 2023. With ambitious targets to sell 20 million EVs by 2030, Tesla plans to achieve 20-30% vehicle growth next year, and aims to deliver around 2.1 million vehicles if 2024 production reaches approximately 1.75 million units.
The company has expanded beyond car manufacturing though, with its high-margin Services and Energy segments contributing significantly to profits. Tesla’s energy operations, including solar products and Megapacks, are being scaled globally, supported by new facilities in Shanghai and Texas. The latter facility will soon complete a 50,000-GPU cluster, designed to cut compute costs by reducing reliance on third-party GPU providers. Tesla will use this internal cluster to advance its FSD technology, develop its humanoid robot, Optimus, and integrate the entire hardware-software ecosystem.
The company also recently unveiled the Cybercab, a pedal- and wheel-free robotaxi designed to support Tesla's entry into autonomous ride-hailing. Targeting production by 2026, Tesla aims for an output of 2 million Cybercabs annually. That said, production challenges could pose setbacks, as seen with previous product delays.
Tesla’s advantage in autonomous driving comes from its extensive real-world data collection, driven by its global EV fleet. Each Tesla equipped with FSD hardware functions as a data-gathering node, continuously feeding back high-quality driving data. This real-world data, gathered from billions of miles of driving, allows Tesla to build and refine models more effectively than simulation data alone, resulting in continuous improvement of FSD capabilities.
Lastly, Tesla’s humanoid robot, Optimus, is progressing quickly. Already deployed in some of Tesla’s factories, Version 1 of Optimus is being refined through data-driven learning, similar to Tesla’s approach with FSD. This positions Tesla as a leader in real-world applications of autonomous robotics, potentially expanding the scope of AI and robotics beyond the automotive industry.
Analysts Have Warmed Up to TSLA Stock
Overall, analysts have a consensus “Hold“ rating for TSLA - although the shares now have 31% “Buy” or better recommendations, compared to only 25% a few months ago. Out of 37 analysts covering Tesla stock, 10 have a ”Strong Buy” rating, 2 have a “Moderate Buy” rating, 17 have a “Hold” rating, and 8 have a “Strong Sell” rating.
The shares have already outpaced their average price target of $215.22, while the Street-high target of $315 indicates an upside potential of about 20.2% from current levels.
