Tesla: 3 Reasons October’s Earnings Will Make or Break the Stock

Key Points

• Tesla shares are trading at their highest level in nearly a year after an eye-watering rally.
• However, their upcoming earnings report in October now looms as a decisive moment for the stock.
• The company’s valuation and bullish analyst expectations leave little margin for error.

Shares of Tesla Inc. NASDAQ: TSLA opened this week around the $430 mark, continuing a remarkable run that has seen them more than double in value since April. The stock is at its highest level since December last year, fueled by renewed optimism around growth drivers such as autonomous driving and robotics. 

But after such a rapid ascent, October’s earnings report could not be more critical. Investors who have been riding the rally will want to see clear confirmation that the fundamentals are strong enough to support Tesla’s current valuation.

With the stock’s price-to-earnings multiple now above 250, it's loftiest in almost four years, and the margin for error is razor-thin.

One thing is for sure: it will be one of the quarter’s most-watched reports. Here are three reasons in particular as to why it could make or break Tesla’s year.

Reason #1: Margin and Delivery Pressures

The heart of Tesla's earnings story is whether it has successfully stabilized profit margins and delivery numbers. As we recently flagged, the company’s U.S. market share fell below 40% last month for the first time since 2017, a sharp reminder that Tesla is no longer the only game in town.

Competitors from at home, and further afield, are pressing into the EV market, while Tesla’s lineup has grown older and less differentiated.

Price cuts in China and discounts in Europe and the U.S. have already hit margins, while brand challenges linger. Analysts will watch closely to see if cost efficiencies and the refreshed Model Y can offset these pressures. However, with expectations already sky-high, even a slight miss or disappointment could deflate the rally fast. 

Reason #2: Valuation Demands Flawless Results

Then there’s the question of valuation, where even the bulls have to acknowledge that Tesla leaves little room for a misstep. The stock now trades at more than 250 times earnings, far above the broader market and many of its tech peers.

That kind of multiple might be justified if growth continues to outpace expectations, but it puts enormous pressure on every quarterly update.

October’s report must show that revenue growth, margin trends, and demand pipelines remain robust enough to support such a premium.

If Tesla can deliver, analysts will likely keep ratcheting up their expectations and targets. Last Friday, for example, the team at Baird upgraded their rating on the stock from Hold to Strong Buy, a stance that was echoed on Monday morning by Piper Sandler, which boosted its price target to $500. 

It’s important to note, though, that some on Wall Street are already urging caution, like the Goldman Sachs team, which gave Tesla shares a Neutral rating last week.

Suppose the report comes in even slightly light. In that case, the bears will seize the opportunity to argue that Tesla’s multiple has run too far ahead of reality, and the more bullish analysts could be forced into an awkward retreat.

Reason #3: The Narrative Around New Growth Engines

The final factor is how Tesla’s long-term bull case increasingly rests on opportunities beyond just cars. Elon Musk has positioned the company as a leader not only in autonomy, but also in robotics and AI-driven platforms. Though modest in scope, the launch of its robotaxi service in Austin earlier this year was framed as a step toward Musk’s vision of a driverless fleet.

Meanwhile, progress on Optimus, their humanoid robot known as “Tesla Bot”, has been pitched as another transformative opportunity.

The problem for investors is that much of this narrative remains speculative. Full Self-Driving is still not fully cleared by regulators, and Optimus is years away from any scaled production.

Therefore, October’s earnings call will be a key moment for management to update investors on the reality of these opportunities. 

If Tesla can credibly show that its investments in autonomy and robotics are moving closer to revenue-generating businesses, the bulls will have another powerful reason to stay long. If not, the bears will argue that investors are still paying tech multiples for an automaker with a declining market share.