Earnings Preview | Roadster Soars, Profits Plunge: Can Tesla, Inc. (TSLA.US) "Narrative Valuation" Hold Up?

After the bell on October 21, Tesla, Inc. (TSLA.US) will report its third-quarter earnings. The company's Q3 deliveries fell 2.1% year-over-year, yet its forward P/E ratio currently exceeds 200xa high valuation that reflects expectations for autonomous driving software and energy storage technology, not for current automotive operating margins. Earlier, on the evening of October 15, at SpaceX's McGregor test site in Texas, Tesla, Inc. unveiled the long-delayed second-generation Roadster: the vehicle climbed along a giant U-shaped suspended track, hung upside down and hovered, then used cold-gas thrusters jointly developed with SpaceX to lift off, complete a barrel roll in mid-air, and land steadily before driving back onto the demonstration track. Musk called it "the greatest product demo of all time" and left behind a widely quoted line: "It turns out the future does have flying cars." The demo arrived six days before earnings, setting up a new forward-looking guidance point for Musk on the earnings call; but on Wall Street, what determines the stock price is not that somersaulting sports car. A Textbook Demo, and a Skeptical Capital Market The technical details of the demo were indeed rare: chassis fans generated suction to keep the car stuck upside down to the track, cold-gas thrusters handled lift-off and attitude control, and there was no driver in the car throughoutthe maneuvers were performed remotely via pre-programmed sequences (Hithink RoyalFlush Information Network and East Money Information citing on-site reports). Tesla, Inc. claimed a 060 mph acceleration time of 0.81 seconds and presented three versions: Performance, Sport with added rear thrusters, and Rocket with thrusters distributed across the body capable of stable short-duration flight. Reservation thresholds were announced simultaneouslya $50,000 deposit for Performance, $250,000 for the Thrust version, and the Rocket version as an invitation-only single-seat model. Commercialization is where the problem lies. The Roadster's mass-production target is set for 2028, while the delivery date promised when the car debuted in 2017 was 2020 (JPMorgan's Rajat Gupta). More critically, regulatory compliance: the Rocket version with the full flight kit is not allowed on public roads and is restricted to closed courses, while the road-legal Performance version does not include the full flight kit"the one that can fly can't be bought, and the one that can be bought can't fly." The European Union Aviation Safety Agency also stated that any vehicle operating as an aircraft must meet applicable aviation safety requirements. The original author Brett Ashcroft Green put it more bluntly: even the Rocket version could not possibly have the capabilities shown in the demo"the DOT and NHTSA are clearly not ready for a car that can leap over traffic jams." The stock market's reaction confirmed this reservation. On the first trading day after the demo (October 16), Tesla, Inc. rose more than 2% intraday before closing down 2.13% at $354.72, falling 7.31% for the week and widening its year-to-date decline to about 21%. Over the same period, the Nasdaq 100 Index fell 5.49% for the week and NVIDIA Corporation dropped 6.61%cooling in the AI trade dragging down high-multiple growth stocks was the more dominant force that week. The Numbers Are Already on the Table: Deliveries Beat, Profit Expectations Cut Repeatedly Q3 deliveries were announced on October 2: 486,532 vehicles, up 1.3% quarter-over-quarter and better than market expectations for two consecutive quarters, but still 10,657 fewer than the 497,099 vehicles in the same period last year, a decline of 2.1%. By structure, Model 3/Y deliveries were 478,237, roughly flat year-over-year, while other models totaled only 8,295, plunging 47.9% year-over-year, mainly due to fading Cybertruck momentum; the high base from the same period last year should not be overlooked eitherthat was a pull-forward buying season ahead of the expiration of the $7,500 federal tax credit on September 30, 2025. Energy storage deployments were 13.7 GWh, up 9.6% year-over-year and 1.5% quarter-over-quarter. The profit side is a different curve. Consensus stands at adjusted EPS of $0.43$0.45 and revenue of $27.8$28.1 billion (Zacks at $0.44/$27.8 billion; AlphaStreet's aggregation of 24 analysts at $0.45/$28.11 billion, with EPS estimates ranging as wide as $0.30$0.70), down 10%14% from $0.50 in the same period last year. Consensus has been cut by 3 cents over the past 30 days; over a 90-day window, EPS consensus has been revised down 18.2% from $0.55 (AlphaStreet); the original author counted 18 downward revisions. The last lesson is still fresh: Q2 adjusted EPS of $0.33 missed consensus by 34%, the largest miss in eight quarters. The options market implies a 7.43% two-way move for this earnings report, above the 5.95% average absolute move after the past four reports. Margins: The Real Battleground The Q2 problem was "selling more, earning less per vehicle": automotive gross margin excluding regulatory credits fell from 19.2% to 16.3%, and energy gross margin was halved from 39.5% to 20.4% (the latter included a $240 million historical warranty adjustment and the disappearance of tariff benefits). Management explained that excluding about $230 million in one-time items, automotive gross margin was roughly flat quarter-over-quarter; Morgan Stanley expects Q3 automotive gross margin excluding credits of 16.4%. More striking is the operating margin: just 1.4% in Q2, meaning every $1 of revenue yielded only about 1.4 cents of operating profit. According to peer data compiled by Business Quant for the period ended June 30, 2026, Toyota was at 7.86%, Honda at 8.76%, GM at 3.04%, Ford at 1.32%, and Ferrari NV at 31.22%. Putting Tesla, Inc. alongside Ford, GM, and Toyota yields two conclusionsit still leads on gross margin but has fallen behind Toyota on operating margin; and the market clearly is not pricing it as an automaker. His evidence is the share count curve: the other three can only pay employees from operating cash flow and have almost no ability to raise equity without crushing their stock prices, so Tesla, Inc.'s equity expansion path is "completely different," allowing it to raise equity capital during periods of high stock prices and largely avoid long-term debtit remains the only automaker whose cash and short-term investments far exceed long-term debt, giving it room for repeated trial and error. It should be added that Toyota's own operating margin is also declining: FY2025 was 10.0%, and FY2026 estimates range from 6.3% to 7.9% across sources, mainly due to U.S. tariffs and Middle East conditions. While Tesla, Inc. "loses to Toyota," Toyota is also retreating. The Imagination Checklist: FSD, Robotaxi, Energy Storage, and a $25 Billion Bill The author lists three high-margin businesses yet to be delivered: FSD subscriptions (he analogizes it to the Apple Inc. App Store model but cautions that the consumer barrier to entry is far higher than for carrier-subsidized phones), Robotaxi scaling (he sees the real risk as a capacity bottleneck"an extra hour spent building this is an hour not spent building other models"), and energy storage (he judges it to be more about revenue growth than high margin, and it could cannibalize the lithium supply needed for vehicles). The latest progress: FSD paid users reached 1.48 million, up 56% year-over-year, with Morgan Stanley putting the North American take rate at 55%. On Robotaxi, after the Cybercab deployment in September, the Austin fleet grew 8x in 30 days to more than 300 vehicles, cumulative unsupervised miles surpassed 1 million (about 380,000 miles at the Q2 report), the network expanded from 3 cities to 7, with Dallas next. The costs are rising in tandem: 2026 capex guidance exceeds $25 billion, and the company has arranged up to $30 billion in debt financing capacity; Q2 capex doubled year-over-year to $5.79 billion, free cash flow turned to about -$1.1 billion, and first-half capex was $8.28 billion, more than double year-over-year. Musk calls the current phase "the fastest industrial-scale expansion since World War II." There is also a regulatory variable hanging over the earnings: NHTSA has required Tesla, Inc. to provide a sworn response on how the pedal-less Cybercab can be certified under federal safety standards, due October 30, the ninth day after the earnings call. The SpaceX Merger: The Ultimate Narrative Engine, and the Most Uncertain Piece The original author makes no secret of his judgment: "I think it (the merger) will happen." The logic: the Roadster demo itself showcased synergies between the two companies, and the thrusters could be used in future Mars rovers; Starlink has already become a key asset of the U.S. defense system in recent military operations; if the two merge, Tesla, Inc. would be like "an early version of GE Aerospace"an industrial and defense company too big to fail. He also folds Optimus into the same narrative. He is not alone in betting on this. Barclays analyst Dan Levy suggested in an October 1415 report that the two companies could announce a merger before Tesla, Inc.'s annual shareholder meeting (which by law must be held no later than December 6), with SpaceX acquiring Tesla, Inc. in an all-stock deal, where the value lies not in traditional automotive synergies but in AI vertical integrationcombining Tesla, Inc.'s Robotaxi and Optimus with SpaceX's xAI units Grok and Macrohard. Wedbush's Dan Ives puts the probability of a completed merger by 2027 at over 80%. On Kalshi, the contract probability for "a merger agreement announced before March 2027" rose from 29% on October 14 to 56% on the morning of October 16. As of now, neither company has officially announced any merger plan; prediction-market prices reflect trader pricing rather than the existence of an agreement, and the Barclays report is an analyst scenario exercise rather than company disclosure. Over the same period, Polymarket priced "merger completed before end-2026" at only about 24%, and another Kalshi measure at about 19%, indicating that market disagreement over "near-term completion" is far greater than over "it will happen eventually." The substantive links that already exist: SpaceX acquired xAI in February this year, Tesla, Inc. invested $2 billion in March for less than 1% of SpaceX equity, and the two are jointly advancing the Terafab semiconductor project; Ostian estimates that about $1 billion of Q2 GAAP net income came from mark-to-market gains on its SpaceX stake. Even if it proceeds, the obstacles are equally concrete: two shareholder votes, antitrust review, and a national security review triggered by a defense contractor absorbing an automaker with deep China exposure. What the Institutions Think, and a "Milder" Alternative On price targets, sell-side views are not far apart but lean conservative: Investing.com's aggregation of 38 analysts gives a 12-month average target of $397.83, including JPMorgan at $415 (Neutral), Morgan Stanley at $400 (Neutral), Goldman Sachs Group, Inc. at $360 (Neutral), and UBS Group AG at $391 (Hold). Morgan Stanley's Andrew Percoco takes a constructive view, citing demand resilience, the potential for broader FSD approval to boost demand and gross margin, and an undervalued energy business, but he remains cautious on the Optimus commercialization timeline and emphasizes that cash burn and valuation limit near-term upside. His stance on Robotaxi best captures the current disagreement: scaling is good, but "utilization, safety performance, and unit economics are the next tests." The analysis notes that this quarter will not look good and may even miss already-lowered EPS expectations; the company needs a new deliverable product to fill the gap left by the Cybertruck; and with SpaceX now public and merger expectations building, the alternative Tesla, Inc. needs to offer is Baron Partners Fund (BPTRX)the fund provides roughly 46% combined exposure to Tesla, Inc. and SpaceX, and Ron Baron says he will hold both long term, with lower volatility than holding either alone; the author also discloses long positions in BPTRX and TM for himself and clients, so this recommendation should be viewed as a conflict of interest. On valuation, there is another set of reverse numbers: by Ostian's estimates, Tesla, Inc.'s forward non-GAAP P/E is about 215x (industry median about 15x), forward PEG 11.5 (industry 1.25), and even using 2027 estimates it is still about 174x; the 2027 forward P/E is 207.84x, and only a handful of analysts dare to forecast the earnings trajectory beyond 2028those who do imply a 2032 forward P/E of about 18.87x, meaning earnings would need to grow about 11x in six years. That is the essence of this earnings report: the market is still paying for imagination, and what the October 21 report tests is the distance between imagination and cash flow.