Where next for Tesla shares after Q3 results?

The Tesla (NASDAQ: TSLA) share price is certainly unpredictable. Right now, 60% of IG clients are long on the EV manufacturer. Yet on-and-off, it’s been the most shorted stock in the world. On 4 May 2018, when Tesla was trading at $58, CEO and founder Elon Musk tweeted that the ‘short burn of the century’ would be coming soon. With its share price now 1,400% higher this opinion was prophetic. And right now, with short interest at only 3.64%, Tesla may have vanquished its short sellers for good. But that’s still $22.65bn of shorts against the company.

Where do you think the Tesla share price will go next?

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Tesla financial results

Yesterday Tesla revealed record Q3 results. It achieved its best-ever net income, operating profit and gross profit. Revenue grew 57%, while the average selling price (ASP) of its vehicles fell 6% year-over-year. Sales of its more expensive Model S and Model X cars fell, as consumers shifted towards its cheaper alternatives. Meanwhile, its debt has fallen to just $2.1 billion.

With the Model 3 costing an affordable $41,190, its cars are now no longer toys for the rich. Instead, the company is pivoting to producing for the mass market, stating that the ‘more vehicles we have on the road, the more Tesla owners are able to spread the word about the benefits of EVs.’

Operating income increased to $2 billion, resulting in an increased 14.6% operating margin which exceeded its medium-term guidance of ‘low-teens.’ The company attributes this margin growth to economies of scale reducing manufacturing costs faster than the decline in ASP. Encouragingly, its flagship 5.3 million square feet factory in Fremont, California, has produced more cars in the last year than ever before.

And the semiconductor shortage, port congestion and rolling blackouts have all hit its manufacturing output. Revenue could have been even higher. On the other hand, the company cited these ‘additional supply chain costs’ as a key concern going forward.

The Tesla share price problem

Tesla is volatile. It hit $793 on 29 January this year, before falling to $625 on May 28. At $865 today, it has a price-to-earnings ratio of 400. Many feel this extraordinarily high valuation can be justified by Musk’s unique capabilities. But he’s often in hot water with the Securities and Exchange Commission (SEC). And the entrepreneur personally faces a $9 billion lawsuit over the SolarCity debacle.

But Tesla’s growth potential is astronomical. UK PM Boris Johnson is planning for all new cars in the UK to be fully electric by the same year. Meanwhile, US President Joe Biden wants 50% of all US cars to be electric by 2035 and has said ‘the future is electric and there is no going back.’

However, there’s huge competition for market share. The ‘big three’ of US car manufacturing — General Motors, Ford, and Chrysler, are all transitioning to electric. And this transition could prove to be faster than Tesla’s ability to grow.

The bottom line

The Tesla share price is elevated because investors believe in Musk’s vision for the EV revolution. It delivered 241,391 cars in Q3 2021, compared to 139,593 in the same quarter last year. And it expects to achieve a continual ‘50% annual growth in vehicle deliveries.’

The future of the Tesla share price depends on whether its rapid growth is sustainable in the face of supply chain problems and increased competition.