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Tesla: What Wall Street is saying about its surprise profit



elon muskTesla on Wednesday posted surprise third-quarter earnings that topped Wall Street’s expectations.Max Whittaker / Getty Images

Tesla on Wednesday posted a surprise third-quarter profit thanks to strong revenue generated by its Model 3 sedan. 

The electric-car maker earned $2.90 a share, well above the $0.15 loss per share expected by Wall Street analysts. It generated $6.8 billion in sales, beating the $6.3 billion that was anticipated.

The Model 3 sedan was a huge driver for the quarter.

“Q3 2018 was a truly historic quarter for Tesla,” the company said in a press release. “Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume.”

The high price of Model 3 helped increase Tesla’s gross automotive margin, which resulted in an $881 million free cash flow and $3 billion cash in total for the quarter, the electric-auto maker said. Tesla admitted that its Model 3 weekly average production fell short of its target.

Nearly every analyst was impressed by Tesla’s ability to generate a profit. But they have mixed opinions about Tesla’s sustainability in the long term. 

Here’s what Wall Street is saying about the quarter:

RBC Capital Markets

RBC Capital Markets

Matthew DeBord/BI

Price target: $325 (from $315)

“TSLA may have crossed the line to become self-funding,” said RBC analyst Joseph Spak.”But is it sustainable? Near-term probably yes. Longer-term more questions.”

He added: “While Tesla is a very innovative and disruptive company with strong growth ahead via disrupting large addressable markets, it is also a classic story stock that is difficult to value given that the investment decision is often qualitative rather than quantitative. Thus, near- to medium-term performance is likely to be determined by expectations and delivering on targets. While we are positive on the long-term opportunity, the stock appears to fairly balance medium-term assumptions with execution risk.”

“To that end, we believe that Tesla is essentially learning how to become a manufacturing company on the fly. While we don’t have meaningful reason to doubt that Tesla can eventually achieve its targets, doing so in a timely manner without some growing pains could prove challenging. Failure to hit near-term objectives may not impact the long-term view but could hold back the stock or provide a more favorable risk/reward entry point.”

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