Why Tesla Stock Is Soaring Today

Motley Fool - Thu Oct 24, 10:08AM CDT

Tesla(NASDAQ: TSLA) updated investors with its third-quarter report last night, and the stock is soaring as a result. There was plenty of good news packed into the report as well as CEO Elon Musk's comments on the quarterly conference call.

As a result the stock was trading higher by 16.8% as of 10:40 a.m. ET. The big move has brought Tesla shares back into the black for the year.

The list of items charging up investors today starts with profitability and cash. Tesla beat analyst expectations with adjusted earnings per share of $0.72. The average estimate was for a profit of $0.58. That was achieved because the company's electric car sales were more profitable than many expected. Tesla reported an operating profit margin of 10.8%. That's the highest level since the first quarter of 2023. It compares to 5.5% and 6.3% in Q1 and Q2 2024, respectively.

Tesla also said it generated a robust $2.7 billion in free cash flow in the quarter. The company is using that excess cash to fund its plans to introduce fully self-driving cars, improved software, and potentially a network of robotaxis. Those future plans are much of what investors look toward as they value Tesla stock at its lofty level. Tesla stock's price-to-earnings ratio is near 70, almost triple that of the overall market.

The reaction in the stock was also due to what Musk said on the conference call for investors. He sees 20% to 30% vehicle sales growth in 2025, implying up to about 2.3 million deliveries in 2025. Maybe more important was his comment that Tesla is "on track to deliver our affordable models starting in the first half of 2025." Lower priced cars that appeal to a broader group of potential electric vehicle (EV) buyers is one thing investors have been clamoring for.

Elsewhere, Tesla is also seeing strong growth in its energy business with storage deployments increasing by 75% year over year. That combination of results and 2025 expectations has the stock soaring today.

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Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.