Tesla shares rise on delivery forecast. Is it time to buy the shares?

Tesla‘S (TSLA 3.34%) The stock has had an up-and-down year, but shares moved higher after the third-quarter earnings report and optimistic forecast for future deliveries. After offsetting negative returns in the first half of 2024, the stock is currently around breakeven for the year.

The electric vehicle (EV) maker continues to talk about its plans for autonomous vehicles and its robotaxi, which it previewed earlier this month. Let’s take a closer look at the company’s earnings, CEO Elon Musk’s comments, and whether now is a good time to buy the stock.

Regulatory credits drive results

After a decline in the first two quarters of the year, deliveries increased by 6% in the third quarter. Model 3/Y deliveries rose 5% to 43,668 vehicles, while other models, including the Cybertruck, saw deliveries rise 43% to 22,915 vehicles.

Total car production in the quarter, meanwhile, rose 9% to 469,796. Production of Model 3/Y increased 6%, while production of other models increased 91%.

Tesla’s auto revenue rose 2% to $20 billion. A 33% increase in automotive regulated loan revenues to $739 million drove the gain. These are credits that Tesla sells to other automakers to help them meet environmental requirements in certain states and regions. Income from regulatory credits is generally considered unpredictable because the market for it is relatively opaque.

These credits are also pure margin, which helps both gross margins and profits. Tesla’s overall gross margins rose 195 basis points to 19.8%.

Total revenue rose 8% to $25.2 billion. Power generation revenues rose 52% to $2.4 billion, and services and other revenues rose 29% to $2.8 billion.

Amended earnings per share (EPS) rose 9% to $0.72, easily surpassing the LSEG-compiled consensus of $0.58, despite a slight revenue hit. Amended EBITDA (earnings before interest, taxes, depreciation and amortization) rose 24% to $34.7 billion.

Cheerful prospects

Looking ahead, Tesla was very optimistic about 2025, with Musk saying his “best guess” is that the company would increase deliveries by 20% to 30% next year. That was higher than the 15% shipment growth for next year that analysts estimated, as compiled by Fact set.

The growth in deliveries is expected to be driven by Tesla offering more affordable models from the first half of next year. However, Musk did not go into detail about what these more affordable models would be; he only said that preparations were being made to launch them. According to Reuters, the company reportedly gave up a cheaper Model 2 earlier this year, only to put it back on the table. It has also discussed selling its two-seat robotaxi directly to customers for $30,000 in 2026.

Tesla keeps talking about autonomous driving and its Cybercab. The company said it expects its entire line of vehicles to be fully autonomous next year. Musk went on to say that the company makes 35,000 autonomous vehicles per week, and that of the 7 million vehicles it has made, most are capable of autonomy.

Meanwhile, Musk said customers in the Bay Area can already take a ride from his robotaxi, albeit with a safety driver. However, according to the California Public Utilities Commission website, Tesla is not licensed to operate a taxi service in the state.

Is it time to buy the shares?

Tesla has had a much better quarter than earlier this year, with rising deliveries. However, despite delivering 6% more vehicles, the company only saw a 1% increase in auto revenue outside of regulatory credits, which is still fairly moderate growth coming from its main business. Meanwhile, high-margin regulatory credits are generally something that should not be relied on.

The forecast of 20% to 30% delivery growth, meanwhile, looks aggressive. The growth of electric vehicles has slowed and Tesla faces increasing competition in this market from established players and new entrants. Meanwhile, in China, the world’s largest EV market, there is an ongoing price war. And while Tesla has talked about a more affordable model next year, there are no details on what this might look like. During the earnings call, Musk said a $25,000 regular model would be “silly” and “pointless.”

While Tesla has been concerned with autonomous driving and how many autonomous vehicles it produces, the simple fact is that the company does not sell or produce vehicles that do not require people to be alert and ready behind the wheel. At the same time, the National Highway Traffic Safety Administration (NHTSA) is investigating the company’s full self-driving system due to persistent crashes, while the camera-only technology continues to be questioned. The same NHTSA should also give Tesla’s Cybercab permission to operate.

Overall, Tesla’s earnings report was just okay, helped by regulatory credits, and the company is generally optimistic. As such, I wouldn’t run out and buy the stock after this rally.