Tesla (TSLA) shares experienced a significant uptick of nearly 22% on Thursday, marking the company’s largest single-day gain in over a decade. This surge comes in response to CEO Elon Musk’s optimistic sales projections, which have reignited investor confidence in the company’s core electric vehicle (EV) business.
Musk’s Promising Sales Forecast
Musk announced an anticipated sales growth of 20%-30% for the upcoming year, alongside a commitment to launch a more affordable vehicle in the first half of 2025. He also noted that efforts to reduce production costs have positively impacted profit margins in the third quarter. As a result, Tesla shares climbed to a session high of $262.20, with trading volumes reaching approximately 200 million shares—an impressive feat that erased recent losses attributed to concerns over Musk’s distractions with new projects, including the recently unveiled robotaxi.
Market Reactions and Short Interest
The stock’s surge added nearly $150 billion to Tesla’s market value at the close of trading. According to Ed Egilinsky, managing director at investment firm Direxion, some market analysts view this rise as a relief rally following the October stock sell-off, which had preceded the earnings announcement. Tesla’s short interest stood at 2.33% at the end of September, contributing to speculation that the rally may also involve short covering.
Investors Seeking Clarity
Despite the positive response, there remain concerns among some investors regarding Musk’s shift in focus towards artificial intelligence (AI) and robotics. Investors were unsettled after earlier company announcements emphasized driverless taxis and humanoid robots, leading to doubts about Tesla’s traditional automotive business. Jessica Caldwell, head of insights at Edmunds, noted that while Musk appeared more engaged during recent discussions, clarity on how Tesla plans to achieve its ambitious goals is crucial for investor confidence.
Strong Third-Quarter Performance
In its third-quarter report, Tesla exceeded Wall Street expectations with a margin that showcased a decline in the cost of goods sold per vehicle, reaching a record low of approximately $35,100. The company also reported $326 million in revenue from its Full Self-Driving (FSD) software, which is integral to Tesla’s plans for autonomous features and ride-hailing services. Seth Goldstein, equity strategist at Morningstar, emphasized that FSD contributes to margin expansion, with the potential for higher long-term margins as it becomes more widely adopted.
Looking Ahead
Musk reiterated his expectations for Tesla vehicles to offer paid, driverless ride-hailing services by next year, reinforcing commitments made during the robotaxi event. However, this plan is likely to face considerable regulatory hurdles, which could impact its execution.
Not all investors are satisfied with Tesla’s current trajectory. Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, expressed his concerns, suggesting that the focus should remain on core automotive operations rather than diverging into AI and robotics.
Tesla’s shares are currently trading at 72.75 times its 12-month forward earnings estimates, a stark contrast to legacy automaker Ford Motor (F) at 5.94 times and technology giant Microsoft (MSFT) at 30.79 times. Following the recent developments, at least seven brokerages have raised their price targets on Tesla, with a median target of $221.
As the market digests Musk’s forecasts and Tesla’s latest performance, the coming months will be crucial in determining the sustainability of this rally and the company’s ability to navigate its evolving business landscape.