Wait, Tesla (TSLA) Stock Is Not Supposed to Gain This Much?!

The electric vehicle maker smashes third-quarter expectations for revenue and earnings, making good on Elon Musk's promise to turn Tesla profitable

Elon Musk - Tesla Stock TSLA

Tesla’s stock price (NASDAQ:TSLA) surged as much as 15% Wednesday, after the electric car maker reported a surprise profit for the third quarter that blew away Wall Street’s profit expectations.

Tesla announced after-hours an adjusted Q3’18 profit of $2.90 per share on revenue of $6.82 billion. The consensus of analysts called for a loss of 3 cents a share and $6.052 billion in revenue. Net income came in at $311.5 million, or $1.75 per share.

In the same quarter a year ago, Tesla posted a net loss of $619.4 million/$3.70 per share as the company spent heavily to ramp up production of the Model 3, which skeptics and short-sellers alike have warned could bankrupt Tesla.

Interestingly, Model 3 is now helping to drive the company’s profitability. In fact, the Palo Alto, Calif.-based car maker reported $881 million in free cash flow despite repaying $82.5 million in bonds. What’s more, Tesla now expects flat or positive free cash flow in spite of plans to repay $230 million of convertible notes in cash during Q4’18.

In an hour-long conference call with analysts late Wednesday, CEO Elon Musk called Q3 an “incredibly historic quarter” for the young car company. Musk also said he expects Tesla to deliver a “significant” number of cars in Europe in the first half of 2019. He also projected global demand of 500,000 to 1 million Model 3s a year.

“I think we have the most exciting road map of any company by far,” Musk said at one point.

Production rates

Tesla delivered 56,065 Model 3 vehicles, or about 4,300 per week, to customers during the third-quarter and 27,710 Model S and X vehicles. At the same time, capital spending was $510 million, which was nearly $100 million below the Q2’18 level. Tesla added to investors’ optimism by saying it expects to report another profit in the current quarter.

Still, company skeptics aren’t convinced the car maker has the long-term sales to justify its lofty stock value. After all, ticker currently trades at 89x forward 12-month EPS estimates. In a post-earnings research, UBS’ Colin Langan kept his ‘Sell’ rating on TSLA with a $190 price target, saying he sees Model 3 average selling prices declining into Q4 and 2019 as Tesla begins delivering the new $46,000 mid-range model.

Meanwhile, Tesla’s bulls, many of whom believe the company’s fundamentals are underappreciated, raised their price targets. Oppenheimer analyst Colin Rusch reiterated his ‘Outperform’ rating on the shares, raising his TSLA target to $418 from $385. JMP Securities’ Joseph Osha did the same, noting Tesla’s Q3 results demonstrate the company is capable of generating positive earnings and cash flow as it shifts to a high-volume business model. Osha raised his price target on TSLA to $412 and kept an ‘Outperform’ rating on the stock.

This is Tesla’s first earnings report since Musk agreed to settle fraud charges with the SEC and relinquish his role as chairman over his Aug. 7 tweets about taking the company private at $420 a share — a substantial premium to TSLA’s trading price per share at the time..

Tesla Stock Action

Tesla’s stock jumped about 31 points, or 10.95%, to $320 as of 8:13 p.m. ET. The shares, always volatile, are down nearly 10% year-over-year and 18% from their 52-week high of $387.46, which the name hit on Sep. 20.

Reference: TheFly

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