Is Tesla’s stock still overvalued in light of its third-quarter results?

Despite the continued semiconductor shortages and supply chain challenges plaguing the automotive sector, Tesla’s Q3 2021 results were better than predicted. Tesla revenues increased by 57 percent year-over-year to around $13.75 billion, versus our forecast of $13.50 billion. Tesla adjusted EPS surged by about 2.5x to $1.86, almost $0.34 ahead of our estimates.Strong demand for Tesla’s mass-market Model Y and 3 vehicles, which saw deliveries increase by 87 percent year over year, as well as the production ramp at the Shanghai Gigafactory, which now produces more cars than Tesla’s Fremont, California facility, contributed to the positive results.

Tesla’s profit margins have also been continuously increasing. In Q3, the automotive gross margin, excluding regulatory credits, increased to 28.8 percent, up from 23.7 percent the previous quarter and 25.8 percent the previous quarter. Tesla’s gross margins are now significantly ahead of the overall auto industry’s average margins of around 10% [1], and we believe they have room to increase much more in the long term as Tesla ramps up sales of its redesigned Model S and X premium vehicles, as well as larger software sales. However, Tesla’s expenses may be pressed by continued supply chain concerns and the anticipated inauguration of production sites in Texas and Berlin in the…