Tesla Shares Surge on Delivery Forecast. Is It Time to Buy the Stock?

Tesla's (NASDAQ: TSLA) stock has had an up-and-down year, but its shares were surging higher following its third-quarter earnings report and upbeat forecast for future deliveries. Having recouped the negative returns in the first half of 2024, the stock is currently around breakeven for the year.

The electric vehicle (EV) maker continues to talk up its plans for autonomous vehicles and its robotaxi, which it gave a preview of earlier this month. Let's take a closer look at the company's earnings, CEO Elon Musk's comments, and whether now is a good time to buy the stock.

Regulatory credits boost results

After a decline in the first two quarters of the year, deliveries increased by 6% in Q3. Model 3/Y deliveries rose by 5% to 43,668 vehicles, while other models, including the Cybertruck, saw deliveries spike 43% to 22,915 vehicles.

Total vehicle production in the quarter, meanwhile, climbed 9% to 469,796. Model 3/Y production increased by 6%, while other model production surged 91%.

Tesla's automotive revenue edged up 2% to $20 billion. A 33% surge in automobile regulatory credit revenue, to $739 million, drove the gain. These are credits that Tesla sells to other automakers to help them become compliant with environmental requirements in certain states and regions. Revenue from regulatory credits is generally considered unpredictable, as the market for them is pretty opaque.

These credits are also pure margin, which helps both with gross margins and profits. Tesla's overall gross margins jumped 195 basis points to 19.8%.

Overall revenue rose 8% to $25.2 billion. Energy Generation revenue climbed 52% to $2.4 billion, and Service and Other revenue jumped 29% to $2.8 billion.

Adjusted earnings per share (EPS) increased 9% to $0.72, which easily topped the $0.58 consensus compiled by LSEG, despite a slight miss on revenue. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed 24% to $34.7 billion.

Upbeat outlook

Looking ahead, Tesla was very upbeat about 2025, with Musk saying his "best guess" is that the company would increase deliveries by 20% to 30% next year. That was ahead of the 15% delivery growth for next year that analysts estimated, as compiled by FactSet.

The growth in deliveries is expected to be powered by Tesla offering more affordable models starting in the first half of next year. However, Musk did not go into detail on what these more affordable models would be -- he just said preparations were being made to begin launching them. According to Reuters, the company supposedly backed away from a cheaper Model 2 earlier this year, only to then to put it back on the table. It has also talked about selling its two-seat robotaxi directly to customers for $30,000 in 2026.

Tesla continues to talk up autonomous driving and its Cybercab. It said it expects its entire line of vehicles to reach full autonomy next year. Musk went on to say that the company is making 35,000 autonomous vehicles a week, and that of the 7 million vehicles it has made, most are capable of autonomy.

Meanwhile, Musk said customers in the Bay Area can already hail a ride from its robotaxi, albeit with a safety driver. However, according to the California Public Utilities Commission's website, Tesla has no license to operate a ride-hailing service in the state.

Image source: Getty Images.

Is it time to buy the stock?

Tesla turned in a much better quarter than it did earlier this year, with deliveries climbing. However, despite delivering 6% more vehicles, it only saw a 1% increase in automotive revenue outside of the regulatory credits, which is still pretty lackluster growth coming from its principal business. Meanwhile, the high-margin regulatory credits are generally something that shouldn't be relied upon.

The 20% to 30% delivery growth prediction, meanwhile, looks aggressive. Electric vehicle growth has slowed, and Tesla is facing increased competition in this market from established players and new upstarts. Meanwhile, in China, the largest EV market in the world, there has been an ongoing price war. And while Tesla has talked about a more affordable model next year, there are no details about what this could look like. On the earnings call, Musk said that a $25,000 regular model would be "silly" and "pointless."

While Tesla played up autonomous driving and how many autonomous vehicles it is producing, the simple fact is that the company does not sell or produce vehicles that don't need humans alert and ready at the wheel. At the same time, the National Highway Traffic Safety Administration (NHTSA) is investigating the company's full self-driving system over continued accidents, while its camera-only technology continues to be called into question. That same NHTSA would also need to give Tesla's Cybercab approval to start operating.

Overall, Tesla's earnings report was just OK, helped by regulatory credits, and the company usually tends to be optimistic. As such, I would not be running out and buying the stock following this rally.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems and Tesla. The Motley Fool has a disclosure policy.