Investor's Corner
Tesla (TSLA) Q3 2019 earnings and return to profitability: Here’s Wall Street’s reaction
Tesla shares (NASDAQ:TSLA) spiked as high as 20% on the heels of its Q3 2019 earnings release, with the company posting a GAAP net profit of $143 million and a non-GAAP profit of $342 million, as well as earnings per share of $1.91. The results pretty much blew away Wall Street’s expectations, particularly as analysts expected Tesla to post a loss for the third quarter.
Following its blockbuster earnings report and an equally encouraging Q&A session that saw Tesla executives confirm an earlier Model Y production date, Gigafactory 3’s battery facility, and Solar Roof V3 (among others), Wall Street has issued its take on TSLA and its Q3 earnings. Here is a compilation of what Wall Street has to say about Tesla’s Q3 2019 results.
The Bulls
Baird analyst Ben Kallo, who holds an “Outperform” rating and a $355 price target on TSLA stock, stated that Gigafactory 3’s activation in Shanghai could be a true difference-maker. “Tesla did lower 2019 volume guidance, though paradoxically we think this will drive estimates higher as investors are better able to bridge to fourth-quarter deliveries. We think ramping volumes (especially in Shanghai) and product development will provide a steady cadence of catalysts over the next 6-12 months and expect shares to trade higher,” he noted.
Piper Jaffray’s Alexander Potter, who holds an “Overweight” rating on the electric car maker, stated that “it’s getting harder to poke holes in the TSLA thesis.” Potter mentioned that while skeptics had legitimate concerns in the past, Tesla has reached a point where it is building cash, gaining traction in the market, and boosting its margins. “Even considering all the EV-related fanfare from competitors, it’s hard to see how other auto companies can catch up with Tesla — at least in the next 3+ years,” he stated.
The Neutral
Daniel Ives of Wedbush, who maintains a “Neutral” rating and a $220 price target on Tesla stock, described Q3 2019 as a “Picasso-like quarter,” though he maintained that concerns remain about the sustainability of demand for the company’s vehicles and products. “Is demand and this level of profitability sustainable? That will be the key question for the Street this morning as the bull/bear debate will view this quarter as Musk and Fremont pulling an eye-popping quarter out of the hat with worries that the lack of investments and tighter expense model is not sustainable going forward,” he noted.
Roth Capital analyst Craig Irwin, who has a “Neutral” rating on TSLA stock and an adjusted price target of $249 from $224 per share, described the company’s third-quarter results as “robust,” though he also stated that he remains cautious, partly due to profit sustainability concerns. “(Tesla’s) volatile quarterly EPS progression should have investors closely scrutinizing sustainable profit levels, and credible growth rates in an increasingly competitive environment,” Irwin stated.
The Bears
Arndt Ellinghorst of Evercore ISI, who has an “Underperform” rating and a price target of $200 per share on Tesla stock, admitted that Q3 2019 was an outstanding quarter for the electric car maker. Nevertheless, the analyst stated that he remains concerned about momentum and profitability in 2020. “While we remain concerned on 2020 momentum/profitability, we acknowledge this was an outstanding quarter relative to expectations, despite headwinds of lower average selling price and facility tooling which we expect to increase as we approach Model Y launch next year,” he wrote.
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JPMorgan analyst Ryan Brinkman, who also has an “Underweight” rating and a $220 price target, stated that he remains “unsure that this is really the breakout quarter that is likely to be claimed by the bulls.” Tesla’s gross margin of 20.8% for the third quarter beat JPMorgan’s estimates of 18.7%, though Brinkman argued that he is not certain about the “quality” of this beat.
As of writing, Tesla stock is trading +15.55% at $294.29 per share.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.
In a new note to investors on Tuesday, Morgan Stanley analyst Andrew Percoco said that Tesla has one big financial question to answer for investors regarding its Robotaxi rollout, Full Self-Driving software, and Optimus.
Percoco said in the note that, for the most part, investors are still very positive about the direction the company is headed. However, there are some things the firm would like to see, and they have to do with financials.
Tesla (TSLA) Q2 2026 earnings results: miss on EPS, beat on revenue
Tesla bulls are more than convinced that the company’s Full Self-Driving software is proof it can develop physical AI. Financially, however, there are still some questions, especially on elevated spending, which CEO Elon Musk said would occur as the company works to roll out Robotaxi faster and continue developing its Optimus robot.
The latter two are where Tesla will have to prove progress to investors, as Percoco writes that both projects “will require clearer evidence that Robotaxi is scaling and more tangible Optimus proof points to support the ROI on elevated capex.”
Percoco said the second quarter earnings call did not change his long-term thesis of where Tesla is positioned in the AI race, which is out in front. However, there are concerns that weaker gross margins and higher R&D spend will stress financials, and that has “sharpened our (and investors’) focus on measurable progress across Robotaxi and Optimus.”
Additionally, Robotaxi still needs to be proven with more operation in existing cities while maintaining safety but improving how many rides it gives in any given time, he said. For Optimus, Percoco wrote that he is “still looking for evidence beyond commentary around SOP.”
Morgan Stanley put Percoco in charge of covering Tesla after long-time analyst Adam Jonas transitioned to the automotive side.
Currently, Morgan Stanley has a $415 price target on Tesla and a ‘Hold’ rating on the stock. It is trading at around $330 at the time of publication, which was 2:30 P.M. on the East Coast.
SpaceX’s massive investment in AI will make it a big winner, Argus Research said after the company’s successful earnings call last week.
The firm also upgraded shares to a Buy from Hold and set a $160 price target.
SpaceX (NASDAQ: SPCX) is currently recovering from its heavy AI infrastructure investments, as it spent nearly $16 billion in Q2 alone. The company did this primarily by monetizing high-demand GPU compute capacity at a much faster pace than traditional data center economics would suggest.
Company CFO Bret Johnsen said that SpaceX would be able to pay back anything on new deployments within a year.
There are plenty of ways the company can do this:
Leasing excess compute capacity through contracts
SpaceX has already built Colossus and Colossus II, largely for its own model training. However, much of that capacity is already rented out to third parties. It already has major deals with Anthropic, Google, and Reflection AI. These partnerships are adding billions per month to SpaceX’s spreadsheet.
High utilization driven by industry-wide scarcity
The demand for advanced AI training and inference capacity continues to exceed what is available for use. SpaceX can fill new racks quickly after they come online, so the capital deployed converts into revenue with minimal idle time.
Additionally, management and outside observers have described the new compute capital as behaving more like a cost-of-goods-sold than traditional multi-year capex, especially because of this rapid monetization pattern.
Capacity has already scaled from ~0.4 GW a year to 1.4 GW annually by the end of Q2. There are targets of more than 2 GW by year-end.
High incremental margins on the rental business once capacity is online
GPU cloud providers often operate at strong gross margins. SpaceX can monetize capacity that was already partially built or can be added efficiently. This means that incremental EBITDA margins on the rental revenue are usually high. This accelerates cash recovery relative to the gross capital outlay.
Parallel monetization of its own AI software and applications
Beyond pure infrastructure rental, SpaceX also generates revenue from Grok through subscriptions and usage, from X through ads, data, and other related services, enterprise APIs, and the planned integration of the Cursor coding tools acquisition.
These application layers ride on the same compute infrastructure and provide additional high-margin streams that could offset build-out costs. AI-segment revenue overall rose sharply to about $2.6 billion in Q2, according to Motley Fool. This was driven primarily by the infrastructure contracts, but the software side is also partially responsible.
Efficient, large-scale deployment and vertical integration advantages
SpaceX has emphasized the rapid construction of power and cooling infrastructure and favorable cost-per-megawatt economics relative to industry benchmarks in some disclosures.
Combined with its ability to scale capacity aggressively and the fact that many contracts start generating revenue within months of capacity coming online, the effective payback compresses dramatically compared with more conventional multi-year data-center projects.
SpaceX’s dominant near-term recovery path will turn the AI clusters into a hyperscale-style compute rental business for other leading AI companies while still using a portion for internal models.
Elon Musk
Another Tesla SpaceX merger prediction by ARK Invest has Elon Musk talking
Elon Musk again denies a Tesla China split as new SpaceX merger speculation resurfaces quickly.
Elon Musk restated that Tesla has no plans to separate its China business from the rest of the company, responding to a new round of merger speculation from ARK Invest.
On the firm’s “Brainstorm” podcast, Cathie Wood’s team, including chief futurist Brett Winton and research director Nick Grous, argued a Tesla and SpaceX combination remains likely, with an announcement possible before the end of the year even if the deal itself would not close that quickly. Winton called Tesla’s Shanghai operations a “small ish wrinkle” for a merger rather than a real obstacle, since SpaceX’s national security work with the U.S. government sits uneasily next to Tesla’s manufacturing base in China.
Musk pushed back on the framing directly. “China is awesome. I strongly encourage people to visit,” he wrote on X. He also repeated language he first used in late July, when the Wall Street Journal reported that Tesla executives had been told to prepare for a possible spinoff, sale, or closure of the China business ahead of a SpaceX tie up. Musk called that report “absurdly fake news” at the time, adding that a separation had “never even come up in a discussion ever,” a line he echoed again this week.
The repeated denial has not settled the underlying question, because Shanghai’s role in Tesla’s business is exactly what makes a merger complicated. Gigafactory Shanghai still ships more than half of Tesla’s global deliveries and functions as the company’s main export hub for Europe and Asia. Teslarati previously reported on Musk’s initial denial, and the merger conversation itself has been building since SpaceX’s IPO gave it public shares to use as acquisition currency.
Wedbush’s Dan Ives has pegged the odds of a Tesla SpaceX merger at 80 to 90 percent by early 2027, and ARK’s prediction of a year end announcement adds another data point to that timeline, even as Musk keeps rejecting the specific mechanics reporters have described. Neither position rules out the other. Musk can deny a China spinoff was ever discussed while analysts still expect some form of combination to move forward, since ARK and Ives are both describing convergence at the corporate level, not necessarily the internal restructuring the Journal described in July.
For now, Tesla’s China business remains intact, and Musk’s comments this week make clear he has no interest in publicly walking that position back, no matter how often the merger question resurfaces.
Tesla has one big financial question to answer for investors: Morgan Stanley
SpaceX AI investment gamble will make it a big winner, firm says
