Supercharged

Tesla’s ($TSLA) Q3 earnings report was a bit like when you’re expecting to fail your high school chemistry test, but somehow end up with a C instead of an F. Earnings per share came in at US$0.72, beating expectations by a margin of 19.22%. Revenue for the quarter was US$25.18b vs an expected US$25.37b.

While you could say that’s a mixed scorecard, Wall Street could care less. The stock soared close to 12% in after-hours trading and 22% the next trading day, as Tesla bulls celebrated the first profit beat in five quarters. Much like your parents learning you won’t have to retake chemistry. 

Analyst forecasts had Tesla’s profits declining more than 45% from 2022’s record. But it wasn’t just that Tesla managed to exceed the Street’s extremely low expectations – there are actually a few line items that inspire confidence for a turnaround. The biggest one? Energy.

Tesla’s Energy business clocked a record gross margin of 30.5% this quarter. While total automotive revenue grew just 2% YoY, energy generation and storage revenue grew 52% over the same period. Tesla expects energy storage deployments will more than double in 2024 (YoY).

Then there was the US$739m Tesla earned in automotive regulatory credit revenue in Q3. It’s basically what automakers buy from Tesla when they can’t meet their own emissions targets. Of course, Tesla has an excess of these credits because it only makes EVs and can sell them at whatever markup it wants.

It’s not ideal that this adds such a big boost to Tesla’s profit margins. Especially when legacy automakers are slowly ramping up their EV outfits. Perhaps the best example is General Motors ($GM). Its Q3 earnings (also out earlier last week) blew past expectations. Revenue came in at US$48.8b, up 10.5% YoY. Its high-margin vehicles like trucks and SUVs were a big contributor to profits, but the firm also sold 60% more EVs than last year – 32,000 of which came in the last three months alone.

General Motors is now the second largest EV maker in the U.S. after Tesla, with a 9.8% share of the market. And while GM’s EVs aren't quite profitable yet, that’s expected to change in Q4.

Ford ($F) is also serious about its EV segment. The F-150 Lightning goes head to head with Tesla’s Cybertruck. But the vehicle itself has negatively impacted Ford’s bottom line – in FY23, Ford reported an EBIT loss of US$4.7b in sales of 116,000 EVs. Slower-than-expected EV adoption rates might be to blame for that, so it’s a good thing that Ford’s bread and butter is its non-EV F-150. For reference, Ford’s F-Series lineup alone generated more revenue in FY22 than Starbucks ($SBUX), Netflix ($NFLX) or Visa ($V).

Ford CEO Jim Farley is a big fan of EVs himself – he’s been driving competitor Xiamo’s Speed Ultra 7 EV for the last seven months. In an investor call, Farley said the company’s planned next generation of EVs will allow it to be profitable in the near future.

Not too long ago, a fully-electric future seemed inevitable. As we’ve seen EV makers and EV business segments struggle, it’s fair to say the uptake hasn’t been what most of us expected. If it continues on this slow route, it helps to have an entire product line of non-EV units ready to sell.