Stock Story -
What Happened?
Shares of electric vehicle pioneer Tesla (NASDAQ:TSLA) jumped over 21% in the afternoon session after the company reported third quarter results that beat analysts' gross margin expectations (19.8% vs 16.9%). That helped it beat on adjusted earnings per share, Adjusted EBITDA, and Free Cash Flow.
Additionally, Tesla saw vehicle delivery growth of 6.4% quarter on quarter, the first time the company recorded quarter on quarter delivery growth in 2024. Moving on, guidance was encouraging as Tesla is expected to sell more vehicles in 2024 compared to the previous year. This suggests deliveries are likely to come in significantly ahead of Wall Street's estimates in the fourth quarter of 2024. In addition, management guided for 20-30% growth in vehicles in 2025.
Investors also reacted positively to the news of Tesla's cheaper electric vehicle, which is on track to begin production next year. Revenue did miss coming in at 25.18 billion vs the expectation of 25.4 billion. However, this was heavily outweighed by the positive results.
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What The Market Is Telling Us
Tesla’s shares are extremely volatile and have had 93 moves greater than 2.5% over the last year. But moves this big are rare even for Tesla and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was about 23 hours ago when the stock dropped 2.6% after the major indices declined (Nasdaq down 2%, S&P 500 down 1.5%) as yields soared amid growing uncertainty about the future pace of rate cuts. Adding to the market's concern is the upcoming November 2024 presidential election, with investors still trying to figure out the potential policy direction under the next administration.
Additionally, the earnings season is contributing to heightened volatility, with investors still processing weak quarterly updates from Starbucks (NASDAQ:SBUX) and Boeing (NYSE:BA).
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Tesla is up 3% since the beginning of the year, and at $255.97 per share, it is trading close to its 52-week high of $263.26 from July 2024. Investors who bought $1,000 worth of Tesla’s shares 5 years ago would now be looking at an investment worth $12,812.