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Tesla’s shares experienced a significant surge on Thursday, closing up nearly 22%, marking their biggest single-day gain in over a decade. CEO Elon Musk‘s optimistic forecast of increasing sales reassured investors that the company’s core business of selling electric cars remains a priority. Musk predicted a 20%-30% sales growth for the upcoming year and announced plans to launch an affordable vehicle in the first half of 2025. He also highlighted efforts to reduce production costs, which led to improved margins in the third quarter.
The stock’s session high reached $262.2, with trading volumes of approximately 200 million shares. This rally erased recent losses that stemmed from concerns over Musk’s focus on new projects, such as the recently unveiled robotaxi. The company’s market value increased by nearly $150 billion at the close of trading. Ed Egilinsky, managing director at investment company Direxion, suggested that the rally might be attributed to a relief rally, as the results exceeded expectations, and some short covering, with short interest on Tesla stock at 2.33% at the end of September, according to LSEG data.
Tesla reported a third-quarter margin that surpassed Wall Street expectations, and the labor and material costs of manufacturing vehicles, known as the cost of goods sold per vehicle, dropped to its lowest-ever level of about $35,100. The company recorded $326 million in revenue for its autopilot software, Full Self Driving (FSD), which is used in Cybertruck and other autonomous features. Seth Goldstein, equity strategist at Morningstar, believes that while FSD contributed to the margin expansion, the primary driver was the reduction in unit production costs, and over time, FSD should lead to higher long-term margin expansion.
However, not all investors are likely to be satisfied with Tesla’s reassurances. Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management and a prominent Tesla investor, expressed his preference for Musk to focus on the fundamental businesses rather than robotaxis and AI. Tesla shares are trading at 72.75 times its 12-month forward earnings estimates, compared to 5.94 times for legacy automaker Ford Motor and 30.79 for technology giant Microsoft. At least seven brokerages raised their price targets on the stock, with a median price target of $221, according to LSEG data.
Meanwhile, the S&P 500 recorded its first daily gain of the week, although the overall sentiment remained somewhat fragile. Most sectors within the S&P were in negative territory, as other earnings reports and pressure from lower, but still elevated Treasury yields weighed on the market.
The yield on the 10-year Treasury note, a key benchmark, eased to 4.20% on the day after hitting a three-month high in the previous session. During Wednesday’s trading, the yield reached as high as 4.26%, contributing to losses across all three major equity indexes.
Stocks have eased from record levels over the past few sessions due to a reassessment of bets on the Federal Reserve’s rate cuts, rising Treasury yields, corporate earnings and uncertainty surrounding the upcoming US election.
(With inputs from agencies)
