Tesla makes record profit, but what do the experts think?

Love him or loathe him, Tesla’s Elon Musk has overseen two amazing share price rallies and his company is one of the world’s biggest. Here’s reaction to latest results.

A bumpy year for Tesla (NASDAQ:TSLA) shares is ending with the electric car maker chasing down a record high, having joined a long list of S&P 500 companies to beat expectations in this earnings season.

At $850 billion, Elon Musk's venture is back among the Wall Street's most valuable companies, having weathered this spring's share price slump with a 27% gain in the second half of 2021.

The company's resurgence passed a big test on Wednesday night when third-quarter results revealed record net income, operating profit and gross profit. An operating margin of 14.6% was also better than medium-term guidance for a figure in the low teens, despite challenges around chip shortages and disruption at ports.

Revenues came in short of estimates, but the beat on earnings meant Tesla was among the 17 out of 23 S&P 500 companies to better Wall Street expectations yesterday. According to Deutsche Bank, this takes the tally so far in the US Q3 reporting season to 67 out of 80.

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Profit-taking means Tesla shares are today being priced slightly lower at around $855, but Morgan Stanley remains overweight on the stock alongside a price target of $900. If this level is achieved, it would exceed the record high of about $884 seen at the start of this year.

It would also offer a further boost to the value of Baillie Gifford's Scottish Mortgage (LSE:SMT) Investment Trust, which has 4.7% of its portfolio invested in the car maker.

The potential share price peak comes less than two years after Tesla became Wall Street's first-ever $100 billion car maker, when it was valued at more than General Motors (NYSE:GM) and Ford (NYSE:F) combined.

Those comparisons were enhanced further yesterday when Morgan Stanley noted that third-quarter earnings of $3.2 billion were the annual equivalent of almost $13 billion, which would get Tesla into the magnitude of its mass-market rivals despite a fraction of the revenues.

The bank added: “What’s particularly notable is Tesla’s margin performance despite significant cost inflation and a 6% reduction in average selling prices year-on-year.”

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Tesla posted a new delivery record in Q3 with 241,300 cars shipped, representing a 20% sequential increase and meaning it should comfortably surpass a 50% volume growth target for more than 800,000 units this year, in spite of the industry-wide chip shortage.

UBS recently raised its 2021 delivery estimate to 894,000, which implies another delivery record in the fourth quarter of 267,000 vehicles. The upgrade has been driven by higher Model Y & 3 sales, with UBS also noting this week Tesla's flexibility on the hardware side of the business to cope with the chip shortage.

The company's Fremont factory produced more cars in the last 12 months than in any other year, but Tesla believes there is further scope for improvement alongside the growth of its Shanghai gigafactory and new capacity in Texas and Berlin.

And as the company pointed out in yesterday's results, the more vehicles it has on the road the more Tesla owners are able to spread the word about the benefits of electric vehicles.

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Morgan Stanley said earlier this year that it believed Tesla could reach 5.2 million units by 2030, which would set a high bar for rivals attempting to catch up in the electric vehicle space ahead of petrol and diesel bans in some countries from that date.

Volkswagen (XETRA:VOW) recently announced it delivered 122,100 battery electric vehicles to customers from July to September, an increase of 109% on the previous quarter. Ahead of its flotation on Nasdaq Stockholm, Volvo (OMX:VOLV B) also reported the number of fully electric cars and plug-in hybrid electric vehicles it sold in the year to the end of June had increased to 171,456.