(Bloomberg) -- Tesla Inc (NASDAQ:TSLA) shares surged in late trading after the electric-car maker posted its first profit in almost a year. Tesla now has to live up to this performance and show progress in coming quarters too, according to analysts.
Elon Musk defied the expectations of those who doubted Tesla could return to profitability and meet aggressive timelines, delivering a result that few saw coming and declaring he’s ahead of schedule on a new plant and the Model Y crossover. Tesla earned $1.86 a share in the third quarter, exceeding the most optimistic projection by a wide margin and beating the consensus estimate for a 24-cent loss.
Still, while welcomed by investors, the positive numbers didn’t dispel some analysts’ doubts, such as concerns around the sustainability of strong gross margins, according to brokers including JPMorgan (NYSE:JPM), which said it’s “not sure this is the breakout quarter claimed.”
Piper Jaffray (overweight)
- Tesla’s share gain in after-hours is “justified” as it posted “a surprising profit,” the broker said, adding that “it’s getting harder to poke holes in the TSLA thesis”
- While skeptics had “legitimate concerns” in the past, the company is now building cash, winning market share and boosting margins, while readying to launch products in untapped segments and regions
- “Even considering all the EV-related fanfare from competitors, it’s hard to see how other auto companies can catch up with Tesla -- at least in the next 3+ years”
- Believes investors underestimate Tesla’s ability to consolidate the automotive market
- Tesla posted “robust” EPS on gross-margin strength in the third quarter; the carmaker’s volatile quarterly EPS progression should have investors “closely scrutinizing sustainable profit levels, and credible growth rates in an increasingly competitive environment”
- Projects that decelerating deliveries growth in 2020 will drive multiple compression and is cautious at current levels
- More positives than negatives as Tesla posts a quarterly beat driven by higher gross margins, lower operating expenses and higher “other-income”
- While an initial positive stock reaction is “understandable” given the underperformance this year and the clear progress in margin and free cash flow, Citi’s impression is that it “won’t necessarily resolve all prevailing bull/bear debates seeing that earnings quality was less than ideal”
- Third-quarter results were better than expected, but the stock reaction seems overdone and valuation is still stretched; the stock “seems to be discounting a lot of good already”
- While total and automotive revenue fell from a year earlier and sequentially, the auto gross margin ex. credits came in at 20.8% vs consensus of 18.3%; “no growth, but cost control -- sounds like an automaker”
- While highlighting the magnitude of the beat in the quarter, JPMorgan says it’s “unsure that this is really the breakout quarter that is likely to be claimed by the bulls”
- 3Q gross margin beat at 20.8% vs JPMorgan estimate of 18.7% and consensus at 18.3%; says it’s not certain about the quality of this beat, while noting that a gross margin-driven beat suggests that Tesla is making progress on this front
- “Impressive and surprising” performance, which led to a ~20% share price increase after hours, “an interesting replay” of what happened last year. This time, the progress has to be confirmed in coming quarters and Tesla needs to show such operating performance is sustainable while growing revenue
