Elon Musk has been quite busy recently, drawing attention not only in the United States where he has been generously distributing money—randomly awarding $1 million to one individual who signs his petitions each day—but also vigorously campaigning with speeches and public appearancesThis juxtaposition of philanthropy and politics has kept him in the headlines, nurturing a mix of intrigue and admiration from the public.

However, amidst his busy schedule, Tesla, Musk's flagship company, has reported remarkable financial successFollowing their quarterly earnings report last Thursday, Tesla's stock surged nearly 22%, which is the largest single-day increase in 11 yearsThe very next day, the share price continued to escalate by an additional 3%. This remarkable upward momentum not only erased all of Tesla's stock losses incurred throughout the year but also added $150 billion to its market capitalization, surpassing that of well-established automotive giants like Ford, General Motors, and Stellantis combined.

Interestingly, just two short weeks prior to this surge, Tesla's value had dipped approximately 10% following a disappointing Robotaxi conference

Investors expressed their frustrations as Musk failed to disclose any pricing information or business model details for the showcased vehiclesThe presentation itself lasted a mere 19 minutes, sparking concerns about Tesla's self-driving strategy, which forms the cornerstone of its high valuation.

Consequently, questions arose: what precisely triggered such drastic market fluctuations?

Firstly, the unexpected excellence of Tesla’s Q3 performance undoubtedly played a roleAfter enduring a tumultuous start to the year—including over 10% layoffs and the halting of projects like the Roadster—Tesla regained its propulsion in the third quarterDuring the period spanning July through September, Tesla recorded a net profit of $2.2 billion, marking a 17% year-on-year increaseImpressively, this result exceeded Wall Street's average expectations by 37%. Several factors contributed to this, including enhanced cost management, carbon credit sales to other manufacturers, and a resurgence in Tesla's energy sector, which helped end a two-quarter streak of profit declines

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Notably, the company's free cash flow hit $2.74 billion—its highest in two years.

Moreover, the gross margin reached an impressive 19.8%, with the electric vehicle segment boasting a 20.1% margin, surpassing market forecasts by 2 percentage pointsEven when excluding the revenue from selling carbon credits, the margin from auto sales improved by 2.4% to 17.1%, the highest since Q4 of 2022, and the peak since the initiation of a price war.

In the fiercely competitive Chinese market, Tesla's Model 3 achieved a record delivery number in July, with September seeing a year-on-year sales surge of 66%. The Model Y further ascended to become the best-selling luxury vehicle in the market.

In Europe, the Model Y had been the sales champion for seven months last year before losing its crown

Despite that, it regained the top spot in September 2023. Currently, no other car manufacturer has successfully launched a model capable of dethroning the globally favored Model YThe concerts of this success show that Tesla can perform exceptionally well even with its long-standing models, the Model Y and Model 3.

To achieve global car stardom, a vehicle must embody high cost-performance, reliability, and a brand reputation strong enough to resonate across cultures, complemented by aesthetics and functionalities that align with global trendsIn the age of combustion engines, this was pivotal for achieving global best-seller statusHowever, in the era of smart electric vehicles, access to an expansive charging network and advanced technology becomes equally paramount.

In 2021, the best-selling car globally was the Toyota RAV4, with the Toyota Corolla and Honda CR-V following closely behind with respective sales of 1.132 million and 903,000. The situation remained fairly consistent in 2022, but the Model Y burst into third position

By 2023, the Model Y leaped to first place with an astounding 1.22 million units sold, pushing the RAV4 and Corolla down to second and third place.

Even five years post-launch, the Model Y maintains its status as the lowest electric consumption SUV, largely because Musk opted to eliminate what he considered unnecessary interior features and extravagant electronic add-ons, resulting in a lighter and more efficient vehicleThis optimization allows the Model Y, equipped with a 60kWh battery, to match or even surpass the range of competitors that utilize larger 80kWh batteries.

Furthermore, another feel-good profit story emerged with the Cybertruck finally turning profitableAfter commencing shipments at the end of last year and ramping up production, it has now achieved a positive gross margin

The revenues tied to the Cybertruck also benefit from Full Self-Driving (FSD) functionalities, as at the conclusion of the last quarter, Tesla released FSD to select Cybertruck ownersThe electric pickup has now become the third-best-selling electric vehicle in the United States market, only trailing behind the Model Y and Model 3, with 16,000 units sold in Q3 alone.

With the Cybertruck joining the ranks benefiting from economies of scale, the marginal costs were driven down, alleviating some pressure on Tesla’s performanceMusk anticipates ramping up to large-scale production by 2026, eyeing annual targets of at least 2 million units, potentially rising to 4 million.

During the earnings call, Musk expressed optimism regarding Tesla’s potential growth for 2025, estimating increases between 20% to 30%. However, he refrained from setting sales growth targets for 2024, citing the nearly 6% decline in global deliveries over the first three quarters of the year

He added, “That’s just my best guess for now.”

Tesla’s Chief Financial Officer, Vaibhav Taneja, tempered this exhilaration by saying that maintaining such profit margins in the fourth quarter may present challenges given the current economic climate.

Analyst Jed Dorsey from William Blair observed numerous signs of financial improvement, noting record-high profitability in the energy sector and an uptick in automotive gross margins despite excluding credit leasingDorsey pointed out that the current automotive gross margin of 17.1% surpassed market expectations“This is largely attributable to quarterly minimum sales costs of $35,106 per vehicle and Cybertruck’s gross margin turning positive after its first delivery yearWe expect Tesla to sustain margins above 15%, with no significant deterioration ahead.”

Secondly, Tesla has decided to abandon the much-anticipated Model 2.

Instead, Musk unveiled that the next product will be a Robotaxi, devoid of steering wheels and pedals.

Musk clarified, “There’s no point in launching a regular vehicle priced at $25,000; that would be rather foolish.” Accordingly, Tesla has shelved plans for the long-awaited $25,000 electric vehicle, widely speculated to be the “Model 2.” Instead, they will pursue a low-cost version of existing models, expected to retail below $30,000, with releases slated for the first half of next year.

Subsequently, Tesla’s next foray will pivot toward the creation of a new model specifically designed for Robotaxi services, again without traditional controls

“We will soon provide ride-hailing services in Texas and California,” noted Musk.

Reports suggest that initially, Tesla aimed to lower production costs through a new assembly platform in MexicoHowever, due to overcapacity and macroeconomic fluctuations, the company will instead employ its existing infrastructure to produce these more affordable models that will far exceed the anticipated $25,000 base price.

Of course, full automation is at the heart of Tesla’s long-term visionAshok, Tesla's vice president of AI software, mentioned that with the upcoming release of FSD version 13, the software performance is on track to improve by 1,000% starting January of next yearBenefitting from this advancement, Tesla plans to directly test Robotaxi capabilities on the Model 3 and Model Y next year, albeit still requiring a safety operator.

The progress surrounding the FSD technology is clear; the cumulative driving distance of FSD has exceeded 2 billion miles

Performance metrics indicate an impressive 5-6 times higher regulatory mileages compared to its predecessor, and internal projections suggest that by Q2 or Q3 of next year, the average intervention distances of FSD could outpace human drivers.

Supportive investments in chip technology underscore these ambitionsThis year, Tesla plans to invest approximately $10 billion in AI-related expenditures, which is more than double the $4.36 billion in free cash flow projected for the yearAt the Texas Gigafactory, Tesla is expected to deploy 29,000 units of the H100 chip early, with plans to reach 50,000 units by the end of OctoberMusk's next procurement steps might include “100,000 Blackwell chips per quarter, totaling 400,000, a scale comparable to Microsoft.”

Despite a troubled launch event, Musk remained optimistic, forecasting an ambitious production of 2 million Cybercab autonomous taxis per year—potentially scaling up to 4 million

Both figures already surpass Tesla’s total vehicle deliveries for 2023 and more than exceed the increase in ride-hailing drivers in China by that same year.

As for the Optimus humanoid robot, Musk did not delve deeply into specifics but suggested that Tesla plans to launch the product by 2026, hinting at its potential for becoming “the most valuable product in history.”

In summary, Wall Street raised its profit expectations, allowing Tesla to once again bask in the glow of Silicon Valley valuations—with an expected price-to-earnings (P/E) ratio soaring to around 83, more than double that of major tech firms like Apple, Microsoft, and AmazonInvestors seem to largely accept this vision, viewing Tesla’s market value of over $800 billion through the lens of innovation rather than merely as a car manufacturer.

Although Tesla is racing to acquire Nvidia chips to fuel its AI, autonomous driving, and robotics ambitions, the path to achieving these goals is still quite vast