While the bears are likely to focus on Tesla's (NASDAQ:TSLA) deliveries guidance cut for Q4 and FY14 (to 33K from 35K, leading to a disappointing Q4 EPS guide of $0.30-0.35 vs. a consensus of $0.75) and delayed Model X introduction (Q3 2015 vs. Q2 previously), we believe there are reasons to be upbeat after the company's Q3 report. Notably, Tesla reassured about its profitability potential and future earnings power as it delivered a solid 2% non-GAAP operating margin in the quarter. The company also guided to a significant improvement in Q4 (we guess a high single digit margin) driven by a higher automotive gross margin (increased manufacturing efficiencies) and leverage on R&D and SG&A costs.
In our August article, we said that Tesla could achieve significant profitability as soon as 2015 (both GAAP and non-GAAP) as the accelerating revenue momentum will spark a significant margin and earnings leverage. Clearly, the Q3 numbers and Q4 guidance confirm that Tesla is on track to reach our expectations. Another major positive was the 50% growth guidance for next year (Model S only) and "probably for several years". These forecasts are consistent with current consensus expectations (+66% revenue growth in 2015, +48% in 2016) which factor in the introduction of Model X, suggesting that Tesla is able to navigate through recent production issues and Model X challenges. Last but not least, Elon Musk's statement that the company does not need to raise money in the short term is reassuring after recent speculation.
In conclusion, we reiterate our positive stance on Tesla and our $305 base case valuation (for full details, please see our article "$421 or $36? Pick Your Scenario"). We believe that the stock could even exceed our target price in view of the strong newsflow around products (AWD Model S, Model X) and the gigafactory (ahead of
