Connect with us

News

Tesla bull shares insights on why regulatory credits don’t matter for TSLA’s profitability

(Credit: Gabeincal)

Published

on

New Street Research managing partner Pierre Ferragu recently explained why Tesla’s (NASDAQ:TSLA) EV credits is only icing on the cake for the electric car maker. Tesla reported a revenue of $8.771 billion with a net income of $331 million in Q3, with regulatory credits accounting for $397 million of the EV maker’s earnings.

When asked about how regulatory credits have boosted Tesla’s numbers this year, Ferragu told Fox Business that the EV credits aren’t a big part of the electric car maker’s future valuation at all. This is partly due to regulatory credits being short-term, and Tesla’s vehicle margins.

“Why are you looking at profits of this year? You know Tesla is trading on maybe, like over 100x that, more than 100x that, so that’s not reason to drive our valuation of TSLA. What really matters is how much profit Tesla makes in 2025, in 2030. We’ve had a string of conversations about that,” said Ferragu.

He explained his stance further, saying: “So, to give you a sense of that, in 2025, I have Tesla making $16 of earnings per share just out of the auto business. And in that, there’s absolutely no credit revenues. We don’t have credit revenues in our model. Credit revenues are very short-term, have a very short duration, so you arrive at about $1.5 billion in pure profit this year. So that’s like free money Tesla gets and Tesla will be able to reinvest in their business.” 

A big portion of Tesla’s EV credits come from its Fiat pooling deal which was estimated to be worth $1.8 billion through 2023 by Baird analyst Ben Kallo. Recently, Honda joined Tesla’s pooling deal with Fiat Chrysler Automobiles (FCA), probably increasing TSLA’s profitability with EV credits. 

Advertisement

Many TSLA bulls, specifically retail investors who have accumulated a good number of shares over the years, agree with Ferragu’s assessment of Tesla’s use of EV credits. As TSLA Bull @stevenmarkryan explained, EV credits are more of a byproduct of Tesla doing what it is already doing. During his interview with Fox Business, Ferragu strived to explain Tesla’s profitability without EV credits on the table. 

“But that money is going away relatively rapidly in the next three or four years. And that’s not part of the overall picture. What really matters today is to look at the gross margins of Tesla excluding the regulatory credits. And excluding credits, Tesla’s gross margins is about 20%, it’s a leading gross margin for a car manufacturer. And it continues to expand as the Model Y is a higher margin, the Model Y is included in the mix. That’s what really matters, and credits have nothing to blame there,” Ferragu said.  

Morgan Stanley recently raised its price target for TSLA to $540. “Mine is a tad above that. It’s $578. They’re getting closer to the truth,” Ferragu commented during his interview.

In October, Ferragu released a New Street Research analysis on Tesla and set his $578 TSLA price target for the company. The analysis hinted at a decade of hyper-growth for Tesla. In it, Ferragu and his fellow analysts estimated that Tesla had an addressable market of 20 million units. The S3XY lineup directly addressed 8 million units with an additional “trading up” opportunity of 12 million units. The Cybertruck added an extra 3 million units to the equation. 

Recently, Tesla joined the Zero Emission Transportation Association (ZETA) along with 28 other companies, like Rivian, Duke Energy, Seimens, and Lucid Motors. ZETA wants to reach 100% EV adoption by 2030 in the United States. In Europe, the EU Commission plans to enforce stricter emission standards that could kill the combustion engine by 2025. Other countries seem be preparing for an EV-lead auto industry as well, which could bring about Tesla’s hyper-growth in the next decade.

Advertisement

Maria--aka "M"-- is an experienced writer and book editor. She's written about several topics including health, tech, and politics. As a book editor, she's worked with authors who write Sci-Fi, Romance, and Dark Fantasy. M loves hearing from TESLARATI readers. If you have any tips or article ideas, contact her at maria@teslarati.com or via X, @Writer_01001101.

Advertisement
Comments

Elon Musk

Tesla’s popular side business is going to get bigger, Elon Musk says

It took several years to get the Diner developed, built, and opened. On July 21, Tesla launched the Diner to the public at 4:20 p.m. local time (of course), after years of development. Musk first offered the idea of a drive-in Supercharger Diner back in December 2018.

Published

on

tesla diner in los angeles during daytime
Credit: Matt Hartman

Tesla will open two new Diner locations in the United States after its first location in Los Angeles has been a raging success, as it is constantly packed and serving food for 24 hours a day, every day.

Tesla CEO Elon Musk said that the initial Diner location on Santa Monica Boulevard is “going well,” and based on reviews and its constant out-the-door lines, it is safe to say it has been a major outlet of interest for people in the area.

It features two massive movie screens, a menu that is locally sourced and has been created by a world-class chef, and Supercharging for EVs. It truly is the perfect stop for those who are hungry, need entertainment, or need a quick charge.

tesla diner

Credit: Tesla

So far, Tesla has not released too many details on the success of the restaurant, but it did state in a graphic for its Q3 Supercharging stats that it sold roughly 50,000 burgers at the Diner in Q3, roughly 715 each day. Burgers are not the only thing on the menu, either.

With how well it has gone, Musk is now considering the possibility of new locations that are notable to Tesla, including Austin and Palo Alto.

On Friday, Musk revealed he believes it “probably makes sense to open one” near Gigafactory Texas and Engineering HQ in Palo Alto:”

It took several years to get the Diner developed, built, and opened. On July 21, Tesla launched the Diner to the public at 4:20 p.m. local time (of course), after years of development. Musk first offered the idea of a drive-in Supercharger Diner back in December 2018.

By 2023, Tesla had secured building permits and broken ground on the site in September of that year.

Since its launch, it has been a popular hotspot for Tesla fans and others to visit, although it has attracted unwanted attention from protestors as well.

They look hungry. If they walked inside and ordered some food, maybe they’d stop yelling into microphones and threatening Musk.

Continue Reading

Elon Musk

Elon Musk’s AI empire grows as xAI leases Palo Alto space near Tesla

The expanding footprint of Elon Musk’s companies in Palo Alto bodes well for the CEO’s plans in the area.

Published

on

Credit: xAI/X

Elon Musk’s artificial intelligence startup, xAI, is expanding its Silicon Valley footprint, leasing roughly 105,000 square feet of office space at Palo Alto’s Page Mill Center, just blocks away from Tesla’s engineering complex.

Musk’s deepening Silicon Valley footprint

People familiar with the matter have informed the San Francisco Business Times that xAI’s lease at Page Mill Center may already have been finalized, adding to the company’s existing headquarters at 1450 Page Mill Road. The two offices share a parking lot, reflecting Musk’s strategy of consolidating his ventures. Tesla’s engineering hub is also just a few blocks away.

The new offices form a growing cluster of Musk-led companies in the heart of the Valley and come as xAI has listed over 250 job openings. These include listings for engineers, designers, and technical staff, among others. 

xAI’s aggressive hiring push hints at rapid scaling, which makes quite a lot of sense considering the company’s ambitious projects. xAI oversees the large language model Grok and other AI initiatives such as the newly launched Grokipedia, and the startup has also acquired the social media platform X. Real estate owner Hudson Pacific Properties, the owners of Page Mill Center, have so far declined to comment.

AI demand and Silicon Valley’s office rebound

Silicon Valley’s office market, long subdued by remote work trends, is seeing renewed activity from AI firms. Hudson Pacific told investors this summer that tenant demand has reached a three-year high, with over half of new leases driven by artificial intelligence companies. Vacancy rates have now fallen for four straight quarters to 16.6% as well, CBRE reported.

Advertisement

The expanding footprint of Elon Musk’s companies in Palo Alto bodes well for the CEO’s plans in the area. Musk, after all, has previously butted heads with officials, resulting in his two biggest ventures, electric vehicle maker Tesla and private space company SpaceX, officially relocating their headquarters to Texas.

Continue Reading

News

Starship lunar update shows SpaceX will not give up the Moon without a fight

SpaceX stated that the revised concept aims to “result in a faster return to the moon while simultaneously improving crew safety.”

Published

on

Credit: SpaceX

SpaceX is reassessing its Starship mission plan for NASA’s Artemis 3 program, exploring what it calls a “simplified” architecture that could accelerate the first crewed lunar landing of the 21st century. 

The private space company stated that the revised concept aims to “result in a faster return to the moon while simultaneously improving crew safety,” following NASA’s decision to reopen the lunar mission contract to new competition.

SpaceX outlines HLS progress

In a blog post titled To the Moon and Beyond, SpaceX detailed recent Starship milestones and reaffirmed its role as a “core enabler” of NASA’s lunar ambitions. As per SpaceX, its efforts are not just aimed at returning to the Moon. It is aimed at establishing a permanent, sustainable presence on the lunar surface. 

“Since the contract was awarded, we have been consistently responsive to NASA as requirements for Artemis III have changed and have shared ideas on how to simplify the mission to align with national priorities. In response to the latest calls, we’ve shared and are formally assessing a simplified mission architecture and concept of operations that we believe will result in a faster return to the Moon while simultaneously improving crew safety,” SpaceX wrote in its post.

The post described Starship’s vast potential for lunar operations, noting that a single vehicle provides over 600 cubic meters of pressurized habitable volume, roughly two-thirds that of pressurized volume of the entire International Space Station, and is “complete with a cabin that can be scaled for large numbers of explorers and dual airlocks for surface exploration.” 

Advertisement

SpaceX also mentioned its fixed-price NASA contract, which ensures taxpayer protection while incentivizing milestone-based progress. As part of its preparations for a Moon mission, SpaceX plans to conduct a key in-space refueling demonstration in 2026, as noted in a Space.com report. Regerdless, SpaceX is still continuing the parallel development of its “core” Starship for Mars and deep-space exploration.

SpaceX’s update followed NASA concerns

NASA Acting Administrator Sean Duffy recently voiced frustration over Starship’s pace, noting on CNBC that SpaceX “pushed their timelines out” while the U.S. remains in a race against rivals. In a comment, Duffy stated that NASA will not wait for one company as it pushes forward with its Artemis program.

“I love SpaceX. It’s an amazing company. The problem is, they’re behind. They’ve pushed their timelines out, and we’re in a race against China. The president and I want to get to the Moon in this president’s term, so I’m going to open up the contracts. I’m going to let other space companies compete with SpaceX, like Blue Origin,” Duffy said.

Elon Musk publicly criticized Duffy over his remarks, but SpaceX’s latest update has shifted the focus back to technical progress and mission readiness. While SpaceX did not elaborate on the details of its simplified architecture, Musk hinted that Starship could eventually accomplish “the whole moon mission” on its own. “Starship will build Moonbase Alpha,” Musk wrote in a recent post on X. 

Advertisement
Continue Reading

Trending