Wall Street is expecting the next monster quarter

Tesla stock (TSLA) jumped on Thursday on several positive notes from the electric vehicle maker in its third-quarter report.

From a third-quarter profit increase and improving margins to an improving growth outlook, a favorable electric vehicle update and the launch of a robotaxi, there's a lot for analysts to complain about for a company whose shares, even including today's big move, are only up for the year increased by 2%.

Bank of America's John Murphy raised his price target due to Tesla's strong quarter.

“We are increasing our EPS estimates slightly due to improved gross margin in 3Q24 due to lower (raw material costs), Cybertruck ramp, fulfillment/cost reductions, registration credits and higher volume,” Murphy wrote in a note published Thursday morning.

Murphy was pleased with strong automotive gross margins, with energy and services (where Tesla expects sales to double by 2025) coming in ahead of estimates. As a result, Murphy increased his price target to $265 from $255 and maintained a Buy rating on the company.

Looking ahead, Murphy and BofA see a “well-positioned” 2025 with a “second wave of growth” for Tesla on the horizon.

“The takeaway (from the positive comments on the conference call) was that Tesla is preparing for the next wave of growth,” Murphy said. “(M)management assumes that unit numbers will increase significantly by 20-30% in 2025. This radical change is likely to be driven by the expected start of production of a cheaper vehicle in 1H25 (more likely 2H25) and the Cybercab.”

Murphy also noted that Tesla saw a surge in fully autonomous vehicle (FSD) adoption following the company's Robotaxi event on October 10 and saw positive developments in the 4680 battery, which he said in terms of cost “the most competitive battery in the USA” is level.

Morgan Stanley's Adam Jonas echoed CEO Elon Musk's prediction that Tesla volume growth could reach 20% to 30% in 2025, which Musk qualified as a “best estimate.”

Musk's goal “clearly depends on the company's ability to improve affordability through the introduction of cheaper (next-generation) models, financing offers and improved features,” Jonas wrote in a note to investors.

Morgan Stanley and Jonas now forecast an annual growth rate of 14% (2.07 mm units) for 2025. This would involve annualizing the expected total delivery in the fourth quarter, which would correspond to around 510,000 to 520,000 units delivered in the fourth quarter.

Jonas and the Morgan Stanley team see Tesla's quarter as one in which investors focused on reducing vehicle costs and increasing the profitability of its automotive business rather than trying to evaluate Tesla's shift to AI and other ventures. Tesla remains a “top pick” for Morgan Stanley with a price target of $310.

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Deutsche Bank's Edison Yu called third-quarter margins in both the automotive and energy businesses “impressive” and reported an 11% quarter-over-quarter increase in fourth-quarter deliveries, which would mark a huge quarter-over-quarter development.

Like other analysts, Musk's forecast volume growth of 20% to 30% was “significantly above our/consensus expectations,” with the cheaper electric vehicle supporting that growth with a launch in the first half of 2025. Combining this news with the incremental information on Cybercab and Robotaxi testing has “led to more debate” about the merits of this business area in the future.

“We continue to believe that Tesla is well-positioned as a technology platform to make end-to-end AI a leader in autonomous driving and humanoid robotics,” Yu wrote, reiterating the company's Buy rating and $295 price target .

One of the most optimistic Tesla analysts ever, Dan Ives, was very impressed with Tesla's quarter, which he described as an “early Christmas present” for investors.

“I think it's about margins, margins, margins,” Ives told Yahoo Finance, with that being the main reason for Tesla's monster stock move today. “Look at their cost of goods sold, their ability to produce cars is ultimately down 30 to 40% and could be down another 20 to 30% next year… What we've seen in margins, the renaissance of I think that growth will now last until 2025.”

Ives says the margin story merges with Tesla's AI and autonomous offerings and other growth drivers, ultimately leading to a market cap of over $1 trillion.

“We could be in a cybercab in the next two to three years, so we're not talking about something that happens five, 10 years later. “This will become a reality in the coming years,” he said.

Ives added: “This will be the next stage of growth, autonomous FSD, AI, but it comes down to you need the supplies and the margins. They check every box.”

Ives was deeply impressed by the earnings call, claiming it was Musk and Tesla's best in several years.

Ives and Wedbush maintained their Tesla outperform rating and $300 price target.

Pras Subramanian is a reporter for Yahoo Finance. You can keep following him X and further Instagram.

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