TSLA Multi-model Signal, 6-month

Tesla’s Signal is set up differently from most names in our coverage, a choice based on multi-period backtesting and the stock’s behaviour.

Tesla’s share price has made a full round trip from the $390 level in late April. It first rose to $490, then fell to $300, before recovering to about $392 today.

Our Signal avoided parts of the sell-off, but it has not banked much gain over the past six months. Tesla is a very difficult name to get right.

Tesla reports two segments. The first is automotive, which includes services and other. The second is energy generation and storage.

The vehicle range is Model 3, Model Y, Model S, Model X and Cybertruck. Tesla delivered 486,532 vehicles in Q3, of which 478,237 were Model 3 and Model Y.

Services and other covers used vehicles, non-warranty maintenance and collision repair, paid Supercharging, automotive insurance, parts and merchandise. Tesla also records Robotaxi rides in this line.

Energy sells Powerwall and Megapack storage products, plus solar panels and Solar Roof. Megafactory Texas began production in Q3, with planned capacity of 50 GWh (gigawatt hours) a year.

Tesla also has these development products:

Revenue model

Tesla earns revenue from these sources:

Tesla and SpaceX already do business together. SpaceX bought $221 million of Megapacks from Tesla in Q3. Tesla also owns less than 1% of SpaceX, a stake worth $2.9 billion at 30 September.

On 20 October, Musk said both boards had formed special committees of disinterested directors to explore a merger. He is not on either committee because he is conflicted. No terms have been agreed. Musk has said that treating a deal as certain “would be overstating it”.

A deal would need the Tesla committee’s recommendation and Tesla shareholder approval. Tesla’s Texas charter sets a majority voting standard for mergers. Musk has said a deal would need 50% of all Tesla shares, not just of the votes cast.

Musk holds 19.8% of Tesla’s voting shares. His 423.7 million unearned award shares vote in proportion to all other shares, so they do not tilt the result. At SpaceX, Musk holds more than 50% of the voting power. SpaceX’s 10-Q says any deal also needs its controlling shareholder’s approval.

No price has been discussed in public. For illustration, a 30% premium to the 26 October close would value Tesla at about $509 a share, or about $2.0 trillion. That is close to SpaceX’s own market value of about $2 trillion.

The prospect already shows in sell-side valuations. One post-results note raised its target to $430 from $415, moving most of its valuation weight to a sum of the parts because a merger has become more likely. It expects merger talk to support the shares.

Revenue was $28.0 billion in Q3, flat YoY and down 0.7% QoQ.

Tesla reports revenue in three lines:

Automotive revenue was $20.6 billion, down 3% YoY and up 0.2% QoQ. Automotive sales were $20.1 billion, down 1% YoY. A weaker US dollar and higher FSD subscription revenue partly offset fewer Model S and Model X deliveries.

Energy generation and storage revenue was $2.9 billion, down 16% YoY and down 8.2% QoQ. Tariff refunds to certain Megapack customers, a lower average selling price per Megapack, fewer Powerwall deployments and lower solar retrofit deployments caused the decline. Higher Megapack deployments partly offset it.

Services and other revenue was $4.6 billion, up 33% YoY and up 0.5% QoQ.

By sales location, US revenue fell 14.4% YoY from $14.6 billion. China revenue fell 7.9% YoY from $5.7 billion. Other international revenue rose 31.8% YoY from $7.8 billion (all three are our calculations).

Active FSD (Supervised) subscriptions were 1.74 million, up 67% YoY. Paid sign-ups reached over 75% of North American deliveries, against over 55% in Q2. FSD is now approved in nine EU countries.

Cumulative unsupervised Robotaxi miles reached nearly two million at quarter end, up eightfold QoQ.

Musk said the Cybercab fleet in Austin grew tenfold in about a month. The head of AI software said Cybercab rides will launch in Dallas next month.

Tesla did not disclose Robotaxi revenue, ride counts, fleet size or price per ride.

Tesla gave no revenue, margin, EPS or delivery guidance.

GAAP gross margin was 19.6%, up 160 basis points YoY and up 280 basis points QoQ. Automotive GAAP gross margin was 18.5%, while energy reached 33.1% (GAAP).

Tariff refunds shaped the quarter. Tesla recognised $526 million of IEEPA tariff refunds as a reduction of energy cost of revenues, but also $339 million as a reduction of energy revenue, for refunds owed to certain customers. The net effect on energy gross profit was $187 million.

Operating expenses were $4.8 billion, up 39% YoY and up 9.7% QoQ. R&D costs rose 69% YoY, while SG&A rose 29% YoY, including $275 million in stock pay for the 2025 CEO Performance Award.

CapEx in Q3 was $4.7 billion, up 110% YoY from $2.2 billion. A full-year total of about $20 billion, as guided on the call, would imply about $7.0 billion in Q4. The CFO said Tesla will fund CapEx primarily from operating cash flow.

Shares outstanding rose from 3,949 million at 30 June to 3,953 million at 30 September, a gain of 4 million, mostly due to equity incentive awards, valued at $314 million.

Tesla made no public offering in the quarter and repurchased no shares. It pays no dividend.

Tesla issued $1.2 billion and repaid $1.0 billion of debt in Q3, mostly vehicle-backed notes. Its $30.0 billion of new credit facilities were undrawn at 30 September.

Here are the key financial metrics from the past four quarters. I designed the table this way so we can focus solely on the key top-line, profit, and cash flow metrics.

Here are the consensus estimates for the next twelve months: revenue growth of 14.3%, with free cash flow of minus $10.7 billion.

On trailing EV/Sales, Tesla trades close to its two-year average of 12.0x, having swung between 7.0x and 16.2x over the period.

On profit multiples, Tesla looks very expensive. Those multiples have risen as profitability has fallen.

Without the Robotaxi and Optimus prospects, the current valuation would be hard to justify.

Over the past year, Tesla’s EV/Sales has had a negative relationship with its one-year forward return: the higher the multiple, the lower the return a year later. At today’s 11.9x, the regression points to a forward return of 14% in a year. That is in line with the consensus estimate of 14.3% revenue growth.

There is little relationship between Tesla’s valuation and its revenue growth. Using the median of the past five years, I think 10x is applicable, although the existing business gives it little support.

One could treat 10x next-twelve-month EV/Sales, implying a price target of $307, as the stock’s core valuation. The difference of about $85 from the current price is then the “option” value of the Robotaxi business. If Tesla unlocks it, Robotaxi opens a large new market that could drive rapid revenue growth over the next five years.

Our DCF sets out the path Tesla needs to justify a value close to today’s share price. Revenue grows 14% and 20% in the first two years, then 60%, 80% and 60% as Cybercab, Robotaxi and later Optimus scale, before slowing to 10% by FY10. That lifts revenue from $103.6 billion over the last twelve months to about $653 billion in FY5 and $2.35 trillion in FY10. The EBIT margin rises from 5.6% to 20% by FY4, against a 2.6% GAAP operating margin in Q3.

These assumptions run far above the consensus estimate, which reaches revenue of about $246 billion in FY5 against $653 billion here. I am showing what Tesla needs to achieve to justify its valuation on a DCF basis.

At a 12.45% WACC (beta 2.0, 15% debt) and 2.5% terminal growth, free cash flow stays negative for two years, then reaches $283 billion in FY10. That gives about $376 a share, with 65.7% of enterprise value coming from the terminal value. A WACC of 11.45% to 13.45% and terminal growth of 2% to 3% move it between $319 and $454. Whether a business with $103.6 billion of revenue can grow about 23 times in a decade, while taking its operating margin from 2.6% to 20%, is for each reader to judge.

Tesla has broken above its 200-day moving average and the top of its price channel this week. The move followed the 20 October news that both companies are exploring a merger, while one post-results sell-side note raised its target on a higher merger probability.

Is the SpaceX merger now everything? For now, it comes close. Q3 showed a car business with flat revenue and a 2.6% GAAP operating margin, funding AI compute, Cybercab and Optimus. On fundamentals alone, today’s price needs growth far beyond the consensus estimate, as our DCF shows.

A merger would change that question. A deal at a premium would pay Tesla holders for the Robotaxi and Optimus option now, rather than in 2027 and beyond. Until the special committees agree terms or walk away, I expect merger news to move the shares more than the operating results.

One should bear in mind that a deal needs a majority of all Tesla shares, while Musk himself has said a merger is not a certainty. Without a deal, the valuation would rest again on Robotaxi revenue arriving in 2027, as management expects.