Tesla Q3 narrative dominated by strong margins: What Wall Street is saying

By Joey Klender

Posted on October 24, 2024

Tesla’s entire narrative related to the third quarter is based on the strong margins it reported, which are a big reason why the stock is doing so well on Thursday, just one day after the Q3 report.

Wall Street has been looking for that strong display from Tesla for several quarters. From a financial standpoint, things have been good — but not great.

Analysts are now drooling over what Tesla reported — a 19.8 percent non-GAAP gross margin, and a 17.05 percent gross margin from automotive alone.

Tesla stock spikes over 20% on strong margins and 2025 guidance

This is truly what analysts have been waiting to see, and along with CEO Elon Musk’s strong comments on the company’s outlook for an increased annual production and delivery rate in 2025, it was hard to be bearish.

Granted, Tesla still has to come through on its lofty plans for the next year. But right now and for today, the focus is margins, and Wall Street is very happy with what they’ve seen.

Here’s what some analysts are saying.

Dan Ives of Wedbush:

“The major overhang on the Tesla story over the past year has been Gross Margins (Auto ex credits) under major pressure as a price war in China and softer EV demand globally has seen this metric go from the low 20% level to sub 15% in the June quarter. Last night, we saw this all-important metric spike back to 17.1%, handily beating the Street’s estimate at 15.1%, and now appearing to be on a trajectory back into the 20% level in 2H2025. “

Tom Narayan of RBC Capital:

“There is growth, and if they can do it with the margin strength that they have, now folks can stop thinking about the automotive piece and margins, and start looking at what really should drive Tesla stock, which is non-automotive things — Energy storage, autonomy, potentially Optimus.”

George Gianarikas of Canaccord Genuity:

“They had an incredible quarter from a margin perspective, much better than anyone thought because the costs of production came down to levels they’ve never before seen.”

Thomas Monteiro, Senior Analyst, Investing.com:

“It’s great to see Tesla getting down to business when it really matters. Although macro factors such as improving demand in China and a resilient U.S. consumer undoubtedly contributed to the positive report, they do not tell the whole story here; in fact, the improving numbers across the board signal the company may have finally found a nice sweet spot for the pricing vs. production costs equation, which has been the main issue for stock performance since last year. Against this backdrop, the market got the message it needed to hear: Tesla’s margins are improving right when they needed to – that is, ahead of a better interest environment globally. This means the company may have more firepower to get the innovation it desperately needs both on the production and product sides faster and better than the competition.”

Tesla shares were up over 20 percent at the time of publication.

Tesla Q3 narrative dominated by strong margins: What Wall Street is saying