Is Tesla Stock Surge Sustainable? A Closer Look at TSLA ETFs

Tesla stock jump on Thursday after releasing mixed third-quarter earnings on Wednesday evening. The company reported its largest quarterly profit in over a year and provided optimistic projections for 2025.

Investors responded positively to Tesla's adjusted earnings per share, which hit 72 cents, surpassing the Zacks Consensus Estimate of 58 cents and improving from last year's 66 cents. Additionally, the company reported an 8% year-over-year revenue increase to $25.18 billion, although this fell short of the Zacks Consensus Estimate of $25.57 billion.

Elon Musk announced during the earnings call that Tesla is on track for 20-30% volume growth next year and confirmed that production of its more affordable electric vehicle is set to begin in 2025. Furthermore, Tesla reported that Cybertruck production rose sequentially in Q3, achieving a positive gross margin for the first time. Management stated that preparations are ongoing for the rollout of new vehicles, including these more affordable models.

Is Tesla's Stock Surge Sustainable?

Earlier this month, Tesla reported a return to delivery growth in Q3 after two consecutive quarters of decline, achieving its third-largest quarterly delivery figures in history. This uptick indicates that some of the demand-boosting incentives Tesla implemented are starting to take effect.

However, it’s important to note that Tesla's delivery numbers have previously fallen short of expectations, and the company has been losing market share to competitors in both China and the U.S., leading to a significant slowdown in growth. Recently, Tesla's robotaxi event did not meet investor expectations, raising concerns among ridesharing investors.

On October 10, 2024, Tesla unveiled its CyberCab, an autonomous vehicle aimed at the ridesharing market, alongside a 20-seater "RoboVan." CEO Elon Musk envisions these vehicles as an alternative to services like Uber and Lyft. Yet, analysts expressed disappointment due to the lack of specific details on the rollout of a ridesharing platform.

During the conference call, Musk stated that production of the CyberCab is set to begin in 2026, with an ambitious target of 2 million units annually. Nonetheless, JPMorgan analysts consider Tesla’s recent stock price increase “unsustainable,” especially after a challenging first half of the year that involved a workforce reduction of over 10%.

Tesla Stock Performance & Valuation

Tesla shares have risen 3% this year and gained 0.6% over the past month. However, the stock remains expensive, trading at a trailing price-to-earnings (P/E) ratio of 91.30, compared to the domestic automotive industry average of 10.90. Additionally, Tesla's price-to-book (P/B) ratio stands at 10.16, while the industry average is just 0.97.

Tesla Growth Projections

Looking ahead, Tesla's expected growth rate for next year is 34.2%, outpacing the industry’s projected 25.90%. Over the next five years, Tesla anticipates a growth rate of 19.90%, compared to the industry’s expected 15.60%. Given this outlook, cautious investors may prefer to adopt a wait-and-see approach until Tesla can demonstrate consistent vehicle growth of at least 20% in the coming year.

Tesla ETFs to Consider

In the meantime, optimistic investors can consider exchange-traded funds (ETFs) that have significant allocations to Tesla, helping to mitigate company-specific risks. Notable ETFs that feature Tesla prominently include the ARK Innovation ETF (ARKK), the Consumer Discretionary Select Sector SPDR Fund (XLY), the Simplify Volt Robocar Disruption and Tech ETF (VCAR), and the ARK Autonomous Technology & Robotics ETF (ARKQ). These options provide a diversified way to gain exposure to Tesla while spreading risk across a broader portfolio.