Tesla shattered Wall Street's profit forecast for the third quarter. But these 6 analysts are questioning how long it can last.

Advertisement
Tesla shattered Wall Street's profit forecast for the third quarter. But these 6 analysts are questioning how long it can last.

elon musk

AP Photo/Jae C. Hong

Advertisement
  • Tesla's third-quarter profit blew past Wall Street forecasts.
  • The news sent shares skyrocketing 20% after the results allayed fears the company might struggle to return to profitability.
  • Some analysts are raising their price targets following the beat, but they're also questioning the how long the company can churn out this level of earnings.
  • Here's what Wall Street is saying after Tesla's unexpected third-quarter profit.
  • Watch Tesla trade live on Markets Insider.

Tesla delivered an unexpected profit for the third quarter on Wednesday, smashing analyst forecasts.

The electric automaker reported earnings per share of $1.91, while analysts expected a loss per share of $0.24. The news sent Tesla's stock surging as much as 20% in early market trading, cutting the share's losses for the year to about 11.5%.

The company said margins improved thanks to better cost controls leading to lower-than-expected operating expenses.

Leading up the earnings, analysts said profitability would be a key focus after Tesla reported disappointing vehicle production data for the period. The profit beat appeared to offset revenue falling 8% year-over-year, the first decline since since 2012.

Advertisement

While some Wall Street firms are raising their price target's for Tesla, they're also questioning the sustainability of its profits.

Read more: 'A license to print money': A former chemical engineer and Ph.D. with no market experience now makes a living day-trading full time. Here's his 3-step process to finding that one successful trade that makes his day.

As the company works toward its ambitious vehicle production target of between 360,000 and 400,000 for the year and begins to bring its China facility online, analysts are warning margins could suffer.

Here's what Wall Street is saying about Tesla's surprise profit in the third quarter:

Get the latest Tesla stock price here.

Advertisement
{{}}

Nomura: "We expect some skepticism will remain for at least another quarter."

Nomura: "We expect some skepticism will remain for at least another quarter."

Price target: Increased to $300, up from $270

Rating: Neutral

"The resulting FCF generation of $371mn was well above the Street (approx. breakeven) and to us could represent a critical turning point in the Tesla story; the company may finally be safely self-funding," Nomura analysts wrote in a note to clients on Thursday.

They continued: "This said, we expect some skepticism will remain for at least another quarter, given the magnitude of the improvement in profitability over just three months."

JPMorgan: "We have some questions about the sustainability of gross margin strength."

JPMorgan: "We have some questions about the sustainability of gross margin strength."

Price target: Raised to $220, up from $200

Rating: Underweight

"While we have some questions about the sustainability of gross margin strength exhibited during the quarter, operating expense tracked lower and the DCF-based portion of our valuation analysis benefits from the lower trend to capital expenditures," JPMorgan analysts wrote

Advertisement

Credit Suisse: "The question moving forward is on the sustainability of the results."

Credit Suisse: "The question moving forward is on the sustainability of the results."

Price target: Bumped to $200, up from $189

Rating: Underperform

"The question moving forward is on the sustainability of the results," Credit Suisse analyst Dan Levy wrote in a note to clients on Thursday.

Levy added: "Our take – a strong step forward, yet Tesla will need to put together a string of similar datapoints to demonstrate the sustainability of results...and its track record has been spotty on this."

RBC: "We struggle to understand how spending doesn't have to go up to support Tesla's growth ambitions."

RBC: "We struggle to understand how spending doesn't have to go up to support Tesla's growth ambitions."

Price target: Increased to $220, from $190

Rating: Underperform

"Cost control can help a quarter, but we struggle to understand how spending doesn't have to go up to support Tesla's growth ambitions," RBC Capital Market's analysts said in a note to clients on Thursday.

They added: "Tesla already hinted that margins could start to take a step back in 4Q19 as China factory comes online."

Advertisement

Bank of America: "The one very concerning aspect of the quarter was that top-line growth reversed to a decline."

Bank of America: "The one very concerning aspect of the quarter was that top-line growth reversed to a decline."

Price target: Raised to $235, from $225

Rating: Underperform

"The one very concerning aspect of the quarter was that top-line growth reversed to a decline, with 3Q:19 deliveries up a mere 2% sequentially from 2Q:19, but, more importantly, revenue down 8% YoY, marking the first decline in seven years for the "growth" company," Bank of America analysts wrote in a note to clients on Thursday.

The analysts continued: "Moreover, further growth will naturally require incremental cost and cash use, putting profitability and cash flow targets at risk soon."

Next StoryTesla's surprise quarterly profit is 'highly questionable' and not 'at all sustainable,' one analyst says