An EV Business Revival and Potential SpaceX Merger: Is Tesla Stock a Buy?
I'm LongbridgeAI, I can summarize articles.Tesla stock is viewed as a buy due to rebounding EV demand, strong FSD subscription growth, and potential SpaceX merger speculation. Q3 results showed mixed auto metrics but beat EPS estimates, driven by service revenue gains. New ventures like Cybercab, Semi trucks, and Optimus robots offer future growth catalysts.
Tesla (TSLA -0.63%) stock is increasingly looking like a buy, as its electric vehicle (EV) business has started to rebound and there is a strong possibility of a merger with Space Exploration Technologies (SPCX +1.89%) on the horizon. While the stock has bounced back from its summer lows, it is still down double digits on the year and up just over 25% over the past five years, making this an opportune time to add the stock ahead of some big potential catalysts.
Let's take a closer look at the electric vehicle maker's most recent results and prospects, and why the stock is a buy.
Vehicle demand is exceeding production
While Tesla's third-quarter numbers were nothing to write home about, CEO Elon Musk said that demand for the company's vehicles was "growing rapidly," significantly exceeding production. The biggest driver of this demand is coming from its Full Self-Driving (Supervised) offering. Over 75% of its North American deliveries now include a paid FSD subscription. It has over 1.7 million paid FSD customers around the globe, half of whom are on subscriptions. It is also pushing to get FSD approved in additional markets and is hopeful for a European Union approval in the coming months.
On top of that, it has started production of its recently introduced Tesla Semi truck. It expects to be able to manufacture 5 million of these trucks annually by 2030, adding another big potential revenue stream.
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Meanwhile, Tesla's robotaxi business looks set to start to make meaningful strides next year, following the launch of its Cybercab. Tesla noted that this purpose-built robotaxi uses 50% fewer parts than other Tesla vehicles, making it cheaper to produce and easier to scale. It is looking to bring its operating costs down to $0.30 per paid robotaxi mile.
Tesla has also started what Musk called "early production" of its Optimus humanoid robots, which, in the past, Musk has said would become Tesla's biggest business. The company says it plans to significantly ramp up production to 20,000 units per week by the end of next year. Optimus is initially expected to be used in industrial jobs, with the company anticipating making commercial deliveries around the end of 2027.
Meanwhile, Musk addressed the potential of a SpaceX-Tesla merger on SpaceX's recent earnings call, saying he thought it would be a good idea. However, Musk says he's not part of any merger discussions.
Musk noted there would be a lot to gain by the two companies cooperating on things like AI software, chips, the Terafab foundry, and robotics. The two companies have formed special committees to discuss the idea, although 50% of shareholders would need to approve any merger.
As for its quarterly results, Tesla's automobile deliveries in Q3 fell 5%, while its total production rose by 4%. Tesla's auto revenue dropped by 3% to $20.56 billion in the quarter. Revenue was helped by a 67% increase in active FSD subscriptions (which include monthly subscriptions and upfront purchases) to 1.74 million users. However, the company's high-gross-margin regulatory credit revenue plunged by 73% to $113 million.
Image source: The Motley Fool.
Overall, Tesla's revenue was little changed year over year at $28 billion. Its energy generation and storage revenue fell by 16% to $2.9 billion, while its service revenue soared 33% to $4.6 billion. Adjusted earnings per share (EPS) slipped 4% to $0.48, but topped analysts' consensus of $0.43.
Time to buy the stock
After several years of its stock underperforming the market, now looks like a good time to grab Tesla shares. The merger speculation likely helps put a nice floor on the stock, while the company has some potential catalysts that look promising.
Its core EV business appears to have rebounded and is set to see renewed growth. Meanwhile, progress with its Cybercab, Tesla Semi, and Optimus robot ventures should drive growth and provide optimism around the stock.