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Tesla's (TSLA) margins and earnings had been driving in the wrong direction over the past several quarters, but the EV maker executed a surprise U-turn in 3Q24, beating EPS estimates for the first time since 2Q23. The competitive landscape remains daunting in both the U.S. and China, and TSLA continued with its price-cutting ways as ASPs fell across nearly all models (S,3,X,Y), yet the steady decline in automotive gross margin finally came to an end in Q3. Providing another charge to the stock was Elon Musk's prediction of 20-30% vehicle volume growth in FY25, which would represent a substantial upswing from the company's expectation for "slight growth in vehicle deliveries in 2024."

• One of the key drivers that sparked the EPS beat was the 6% yr/yr decline in cost of goods sold. In fact, TSLA's cost per vehicle sank to its lowest level ever at $35,100 due to lower raw material and freight costs and improved manufacturing efficiencies for Cybertruck, which achieved positive gross margin for the first time. Accordingly, TSLA's overall automotive gross margin swung higher by about 230 bps yr/yr to 17.0%
• In addition to the improved automotive gross margin, TSLA's cost-cutting efforts also played a part in the better-than-expected earnings performance. After jumping by 39% last quarter, operating expenses fell by 6% in Q3 to $2.28 bln, mainly reflecting the impact of TSLA's 10% reduction in its global workforce that was announced this past April.
• The story on the demand side, though, isn't quite as positive. While revenue growth improved to nearly 8% from the pedestrian 2%-mark seen last quarter, this was mostly driven by the 59% surge in revenue for the Energy Storage business and a 33% increase in revenue from the sale of regulatory credits to $739 mln. Meanwhile, automotive revenue inched higher by just 2% to $20.0 bln.
• However, Elon Musk's optimistic outlook for vehicle growth next year is easing these growth concerns. Of course, it's always wise to take his predictions with a grain of salt, but if TSLA comes anywhere near the high end of his 20-30% vehicle volume growth forecast, that would be a major win for the company and its shareholders. To reach that level of growth, the company certainly would need to be ramping up production of new, affordable models, which is still expected to begin in 1H25.
• Looking further ahead, Musk stated that Cybercab should reach volume production in 2026, while setting a very ambitious goal of eventually making 2 million units annually. For some context, TSLA is expected to produce around 1.8-1.9 million total vehicles this year, for all models.

The main takeaway is that two of the most pressing concerns surrounding TSLA -- eroding margins/profits and slowing growth -- were eased, at least temporarily, with this earnings report. If TSLA can continue to generate earnings growth (EPS was up 9% in Q3), that will make its lofty spending plans around Cybercab and AI a much easier sell to shareholders. Although one quarter doesn't make a trend, the turnaround in TSLA's financials is a welcomed development for shareholders who have seen the stock drop by 14% on a year-to-date basis before today's sharp gains.