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Electric vehicle pioneer Tesla (NASDAQ:TSLA) fell short of the market’s revenue expectations in Q3 CY2024, but sales rose 7.8% year on year to $25.18 billion. Its non-GAAP profit of $0.72 per share was 19.8% above analysts’ consensus estimates.
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Tesla (TSLA) Q3 CY2024 Highlights:
- Vehicles Delivered: 462,890 vs analyst estimates of 463,203 (in line)
- Revenue: $25.18 billion vs analyst estimates of $25.5 billion (1.2% miss)
- Operating Profit (GAAP): $2.72 billion vs analyst estimates of $1.87 billion (45.2% beat)
- EPS (non-GAAP): $0.72 vs analyst estimates of $0.60 (19.8% beat)
- Automotive Revenue: $20.02 billion vs analyst estimates of $20.25 billion (1.1% miss)
- Energy Revenue: $2.38 billion vs analyst estimates of $2.59 billion (8.1% miss)
- Services Revenue: $2.79 billion vs analyst estimates of $2.63 billion (6.3% beat)
- Gross Margin: 19.8%, up from 17.9% in the same quarter last year
- Operating Margin: 10.8%, up from 7.6% in the same quarter last year
- Free Cash Flow Margin: 10.9%, up from 3.6% in the same quarter last year
- Market Capitalization: $792 billion
Automobile Manufacturers
Much capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Tesla grew its sales at an incredible 31.8% compounded annual growth rate. This is a useful starting point for our analysis.We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Tesla’s annualized revenue growth of 13.9% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, Tesla’s revenue grew 7.8% year on year to $25.18 billion, missing Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 15% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and shows the market thinks its newer products and services will catalyze higher growth rates.
Operating Margin
Segments aside, Tesla’s consolidated gross margin averaged 21.4% over the last five years, a tough starting point for operating profits. Its average operating margin of 10.8% at that time was uninspiring for a scaled industrials business but surprisingly good when considering its unit economics and industry structure.On the bright side, Tesla’s annual operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q3, Tesla generated an operating profit margin of 10.8%, up 3.2 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.Tesla’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for Tesla, its EPS declined by 19.6% annually over the last two years while its revenue grew 13.9%. This tells us the company became less profitable on a per-share basis as it expanded. Diving into the nuances of Tesla’s earnings can give us a better understanding of its performance. While we mentioned earlier that Tesla’s operating margin improved this quarter, a two-year view shows its margin has declined 6.4 percentage points. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q3, Tesla reported EPS at $0.72, up from $0.66 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Tesla’s full-year EPS of $2.40 to grow by 22.6%.