Tesla earnings make strong recovery after Q3 sales gain

Tesla posted strong Q3 earnings on Wednesday, reversing course after multiple consecutive quarters of lower profits.

Driving the news: The electric vehicle firm previously posted quarterly deliveries of 462,890 units, an improvement of 6.4% compared to 2023. That increase defied a market cooldown that weakened Q3 sales at other car manufacturers. Here are the key takeaways from Tesla’s earnings report:

• At $25.18 billion, revenues were higher than last year by roughly 8%. Net income saw even better growth, jumping 17.3% to $2.17 billion.

• Lower expenses helped drive profit growth during the quarter. The cost of goods sold reached its lowest level in the company’s history at approximately $35,100 per unit, according to its earnings announcement.

Zooming in: Tesla’s strong earnings performance comes as a welcome surprise, especially given the price cuts and incentives it has implemented to drive demand. However, there are some concerning elements in its report.

• Q3 was Tesla’s second-best quarter for regulatory credits, which it sells to other manufacturers that lag behind on emission improvements. The EV maker earned $739 million from credit sales, accounting for about 34% of its net income. The company’s reliance on regulatory credits to drive profits may be problematic if regulations or emissions performance change.

• While the company’s overall revenue growth was impressive, automotive revenue, which excludes other sources of income, grew only 2%. Although this means Tesla’s other business ventures are seeing bigger returns on investment, it also implies that its core products, EVs, are struggling to drive growth.

Looking ahead: Although Tesla is predicting strong growth in Q4 and 2025, analysts warn that it may face challenges in the coming months.

• An Edmunds survey conducted in August 2024 found that 36% of car shoppers who plan to purchase an EV are less likely to buy from Tesla due to the behavior of CEO Elon Musk.

• Edmunds’ Head of Insights Jessica Caldwell also notes that while EV market share hit an all-time of 8.3% in Q3 (up from 7.5% last year), the sector still faces considerable challenges, including “all-electric competition, slow charging infrastructure development, dependence on incentives and tax credits, and a growing affordability crisis impacting many American consumers.”

• Finally, Tesla’s model lineup continues to age without any major additions aside from the Cybertruck. Meanwhile, other brands are launching new, competitive entries that will likely further eat into the company’s market share.

Bottom line: Tesla had a solid quarter that outpaced expectations and drove growth when other competitors struggled to keep up with prior-year results. At the same time, the brand continues to face questions about how it will maintain its momentum while the EV market becomes increasingly crowded.

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