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Is Tesla's Narrative Shifting? Why the Stock Deserves a Second Look
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Key Takeaways
Tesla shares gained 9.5% in two sessions amid a Barclays upgrade, SpaceX merger buzz and FSD expansion.
Tesla delivered 486,532 vehicles in Q3 as FSD customers surged 67%, while auto margins improved to 18.5%.
Tesla's Robotaxi and Optimus progress and positive cash flow offer promise, but high costs remain a concern.
Electric vehicle (EV) and tech giant Tesla (TSLA - Free Report) has had a rough year in the markets, especially after a tough stretch of challenges that weighed on sentiment. Lately, though, the story seems to be turning. The stock gained 9.5% over the past two trading sessions. Two catalysts may explain the move.
Barclays upgraded Tesla to Overweight and raised its price target to $450 from $370, pointing to a possible SpaceX (SPCX - Free Report) merger. Separately, Latvia authorized Tesla’s Full Self-Driving (FSD) software, per Teslarati, making it the 10th EU country to do so.
But the rally does not seem just headline-driven. The third-quarter numbers gave investors real reasons for optimism.
Tesla delivered 486,532 vehicles in the last reported quarter, its second straight quarter above 480,000 units. It also posted its highest passenger vehicle order backlog in four years. Management said demand is running well ahead of production, helped by a broader product lineup and growing adoption of FSD.
Active paid FSD customers rose 67% year over year to 1.74 million. More than 75% of new North American deliveries included a paid FSD subscription at delivery. In Europe, regulatory approval has spread steadily since the Netherlands led in April, followed by Lithuania, Estonia, Denmark, Belgium, Slovenia, Czechia, Croatia and Slovakia. Latvia is the latest, with a software rollout to begin soon.
The product pipeline is widening too. The Semi has entered production, and the Roadster was revealed, with production targeted for 2028.
Margins Are Improving
Profitability moved in the right direction. Automotive gross margin improved to 18.5% from 17% a year earlier. The energy business also did well. Storage deployments reached 13.7 GWh, up 10% year over year, and energy gross margin jumped to 33.1% from 20.4% in the second quarter of 2026. Demand looks set to continue. CEO Elon Musk said Megapack supply for 2027 is almost sold out.
The AI and Robotaxi Chapter Is Taking Shape
Musk has framed AI, autonomous vehicles, robotaxis and robotics as Tesla’s next growth chapters, and there is now visible progress. Tesla began deploying Cybercabs in Austin in September 2026. Cumulative unsupervised Robotaxi miles rose eightfold sequentially to nearly 2 million. Musk said the Austin Cybercab fleet has grown tenfold in roughly a month since launch.
Image Source: Tesla, Inc.
Management expects Robotaxi operations to contribute more meaningfully to revenues from next year. Customer-owned vehicles could start joining the fleet around the second quarter of 2027. Optimus has entered early production on a high-volume line in Fremont, though the ramp will be slow given it is an entirely new product.
Trimmed Capex & Balance Sheet Strength
Capital discipline was a key concern coming into the quarter, with heavy capex and negative free cash flow weighing on investors. Tesla addressed both. It ended the quarter with about $45.4 billion in cash and short-term investments. Free cash flow swung to positive $1.53 billion from negative $1.09 billion in the second quarter of 2026. Management also trimmed 2026 capex guidance to $20 billion from $25 billion and secured up to $30 billion in borrowing capacity, with no draws planned this year.
The SpaceX Factor
The SpaceX relationship adds another layer. Terafab, a joint project with SpaceX, aims to produce the advanced AI chips Tesla needs for Optimus and its wider AI ambitions. Securing compute is critical as Tesla expands beyond EVs, and a closer tie-up could give it access to capital, engineering talent and infrastructure that would take years to build alone.
A full merger is a different question. Both companies are pivoting toward AI, and consolidation promises meaningful synergies. But SpaceX would likely have to pay a substantial premium to win over Tesla shareholders. With a favorable regulatory climate expected in 2027, independent committees weighing fiduciary duties, and Tesla’s strong cash position and voting structure, a valuation bump looks almost necessary.
The Risks Haven’t Gone Away
None of this makes Tesla a risk-free story. Operating expenses remain high, supply chain challenges persist, and operating profits are expected to decline year over year in the coming quarters as costs rise to fund the next growth cycle. Robotaxi and Optimus revenues still depend on execution and regulatory approvals.
Our Take: TSLA Stock Worth Holding Now
These risks are real, but they are the price of a business trying to change shape. The shift is genuine. Demand is strong, margins are recovering, cash flow has turned positive, and the AI roadmap now has tangible milestones behind it.
But the next few quarters will be heavy on spending and light on profit, and the Robotaxi and Optimus payoffs still depend on regulators and execution. This may not be the moment to buy TSLA stock outright, but we think that the stock should earn a place on your watchlist again.
If Robotaxi revenues start showing up next year as management expects, today’s skeptics may be late. For investors with a long horizon, dips from here look more like opportunities.
View the Zacks #1 Rank List
Image: Bigstock
Is Tesla's Narrative Shifting? Why the Stock Deserves a Second Look
Key Takeaways
Electric vehicle (EV) and tech giant Tesla (TSLA - Free Report) has had a rough year in the markets, especially after a tough stretch of challenges that weighed on sentiment. Lately, though, the story seems to be turning. The stock gained 9.5% over the past two trading sessions. Two catalysts may explain the move.
Barclays upgraded Tesla to Overweight and raised its price target to $450 from $370, pointing to a possible SpaceX (SPCX - Free Report) merger. Separately, Latvia authorized Tesla’s Full Self-Driving (FSD) software, per Teslarati, making it the 10th EU country to do so.
But the rally does not seem just headline-driven. The third-quarter numbers gave investors real reasons for optimism.
Tesla, Inc. Price, Consensus and EPS Surprise
Tesla, Inc. price-consensus-eps-surprise-chart | Tesla, Inc. Quote
Demand Outruns Supply as FSD Adoption Climbs
Tesla delivered 486,532 vehicles in the last reported quarter, its second straight quarter above 480,000 units. It also posted its highest passenger vehicle order backlog in four years. Management said demand is running well ahead of production, helped by a broader product lineup and growing adoption of FSD.
Active paid FSD customers rose 67% year over year to 1.74 million. More than 75% of new North American deliveries included a paid FSD subscription at delivery. In Europe, regulatory approval has spread steadily since the Netherlands led in April, followed by Lithuania, Estonia, Denmark, Belgium, Slovenia, Czechia, Croatia and Slovakia. Latvia is the latest, with a software rollout to begin soon.
The product pipeline is widening too. The Semi has entered production, and the Roadster was revealed, with production targeted for 2028.
Margins Are Improving
Profitability moved in the right direction. Automotive gross margin improved to 18.5% from 17% a year earlier. The energy business also did well. Storage deployments reached 13.7 GWh, up 10% year over year, and energy gross margin jumped to 33.1% from 20.4% in the second quarter of 2026. Demand looks set to continue. CEO Elon Musk said Megapack supply for 2027 is almost sold out.
The AI and Robotaxi Chapter Is Taking Shape
Musk has framed AI, autonomous vehicles, robotaxis and robotics as Tesla’s next growth chapters, and there is now visible progress. Tesla began deploying Cybercabs in Austin in September 2026. Cumulative unsupervised Robotaxi miles rose eightfold sequentially to nearly 2 million. Musk said the Austin Cybercab fleet has grown tenfold in roughly a month since launch.
Management expects Robotaxi operations to contribute more meaningfully to revenues from next year. Customer-owned vehicles could start joining the fleet around the second quarter of 2027. Optimus has entered early production on a high-volume line in Fremont, though the ramp will be slow given it is an entirely new product.
Trimmed Capex & Balance Sheet Strength
Capital discipline was a key concern coming into the quarter, with heavy capex and negative free cash flow weighing on investors. Tesla addressed both. It ended the quarter with about $45.4 billion in cash and short-term investments. Free cash flow swung to positive $1.53 billion from negative $1.09 billion in the second quarter of 2026. Management also trimmed 2026 capex guidance to $20 billion from $25 billion and secured up to $30 billion in borrowing capacity, with no draws planned this year.
The SpaceX Factor
The SpaceX relationship adds another layer. Terafab, a joint project with SpaceX, aims to produce the advanced AI chips Tesla needs for Optimus and its wider AI ambitions. Securing compute is critical as Tesla expands beyond EVs, and a closer tie-up could give it access to capital, engineering talent and infrastructure that would take years to build alone.
A full merger is a different question. Both companies are pivoting toward AI, and consolidation promises meaningful synergies. But SpaceX would likely have to pay a substantial premium to win over Tesla shareholders. With a favorable regulatory climate expected in 2027, independent committees weighing fiduciary duties, and Tesla’s strong cash position and voting structure, a valuation bump looks almost necessary.
The Risks Haven’t Gone Away
None of this makes Tesla a risk-free story. Operating expenses remain high, supply chain challenges persist, and operating profits are expected to decline year over year in the coming quarters as costs rise to fund the next growth cycle. Robotaxi and Optimus revenues still depend on execution and regulatory approvals.
Our Take: TSLA Stock Worth Holding Now
These risks are real, but they are the price of a business trying to change shape. The shift is genuine. Demand is strong, margins are recovering, cash flow has turned positive, and the AI roadmap now has tangible milestones behind it.
But the next few quarters will be heavy on spending and light on profit, and the Robotaxi and Optimus payoffs still depend on regulators and execution. This may not be the moment to buy TSLA stock outright, but we think that the stock should earn a place on your watchlist again.
If Robotaxi revenues start showing up next year as management expects, today’s skeptics may be late. For investors with a long horizon, dips from here look more like opportunities.
Tesla stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.