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Last quarter, the rocket company paid Tesla's bills, and sales soared. Over $28 billion per quarter, up 26% year-over-year. So Tesla's profits should skyrocket too, right? In fact, the opposite happened. Profits decreased as a result . And he remained positive only because of one thing. SpaceX. That's right.
Elon Musk's rocket company, Tesla, owns a stake in it. And the paper profit from this share saved the entire quarter. There is one number that proves this, and I will reveal it later in the video. So, why should you listen to me? My name is Ken Freeman. I am a Chartered Financial Analyst ( CFA), a professor at Rutgers Business School, and have over 20 years of experience on Wall Street.
I train top analysts at JP Morgan, Morgan Stanley, and BlackRock. They are paid six-figure sums per case. Read the pages in SEC filings that companies hope you'll miss. I read the entire 10Q report, and that report was hiding something huge. Here's what really defines Tesla stock. I call this the real profit test.
So, is Tesla still the stock of the future in AI? Or are the bears finally right? So what did the report actually show? Expenses . Explosive costs. Madness. Research costs reached 2.37 billion. A year ago it was 1.59 billion. Total expenses rose to 1.98 billion from less than 1.4 billion a year ago.
Imagine that your salary is growing well. Now imagine that your bills are growing much faster. That's Tesla's entire quarter in one line. For every dollar of sales, they kept less for themselves. Gross margin fell to 16.8%. This is the portion they keep until their bills are paid. A year ago, this share was higher.
So, sales skyrocketed , but expenses ate up profits. And this is the weak point of this quarter. Is Tesla building the future, or are they exhausting themselves trying to catch up? To answer this, let's follow the typical buyer. She orders a Tesla from her phone. No dealers, no salespeople, no bargaining.
The car updates its software overnight. She pays extra for full autopilot. Then adds a Powerwall battery for his home. One buyer, four ways to pay for Tesla. Tesla makes money in three main ways. First, car sales, $20 billion, up 27% year over year. And this is the largest part, about 71% of revenue.
Second, services, $4.58 billion, about 16% of the business. Third, energy: $3.14 billion, about 11% of business, and services grew the fastest of the three major areas. The figure increased by 50% over the year. The energy sector is also quietly thriving. 22.3 gigawatts of battery capacity have been deployed.
This is enough to provide energy for an entire city. Charging network, software, application. To leave means to start all over again . And this "stickiness " is the protective moat of business. If you like this analysis, like and subscribe. This helps me provide you with this Wall Street-level analysis every week for free .
When a business collapses, the signs are hidden in the numbers. I found four, and they are serious. For years, Tesla received almost free money. Governments paid her for clean air credits. Almost a net profit, with no construction costs. This quarter, that money almost disappeared, falling to $146 million .
This is a 67% drop in just one year. And although this is the smallest alarm signal today, it is a crack that is becoming an abyss. Tesla produced more cars than it sold. It produced about 860,000 cars and delivered about 838,000, which means that thousands of cars did not find a buyer. They are accumulating as reserves, the value of which is now 13.75 billion.
And this is more than 12.4 billion at the end of the year. Unsold cars are, in essence, money lying idle. This freezes capital and can force prices down. Signal #3 relates directly to profits. Remember that booming energy business ? It brought in more revenue than it did a year ago, but it made less money doing it.
Gross profit fell to $640 million. That's down from $846 million a year ago. And the margin speaks for itself . It fell to 20.4% from 30.3 %. This is the profit from each dollar of sales. It has shrunk by almost a third. Growth that yields less profit is a warning. And the fourth signal is the most important.
This is one that the "bulls" can't explain. While Tesla reported a solid net profit, let's look at where it came from. Not from car sales, as you might expect. Most of it came from SpaceX. Paper profit from Tesla's stake in this company. Nobody sold anything and nobody made any money. And a one-time tax break also helped.
The tax rate fell to 15%. A year ago it was 23%. If you discard these two gifts, the real profit becomes negligible. How meager? I'll leave that number for later. And the real reason Wall Street is running away is the $25 billion capital spending on AI planned for 2026. While this amount is earmarked for AI initiatives like data centers and computing, it is almost three times more than what Tesla spent last year.
So, that's the whole bearish scenario. Four alarm signals, all quite threatening. But here's something the "bears" are overlooking in this mess. One very important indicator almost doubled. So, with these red flags dismissed, what are the prospects for the bulls? While accounting profits can be embellished, cash doesn't lie.
Cash is king. Paper profits held on to the stock market. But real cash tells a truer story. 8.63 billion was received. This is the cash generated from the business's operating activities over the past 6 months. A year ago, this figure was $4.7 billion . It almost doubled. And real money in a cash register is hard to counterfeit.
Now let's take a look at Tesla's bank account. $43.5 billion in cash. This amount includes cash and very safe short-term investments. However, the debt is quite small— about $9 billion . That's significantly more cash saved than their debt. And this “war reserve” will fund their AI goals for years. Remember those explosive costs?
Tesla is intentionally spending $8.28 billion on new plans and technology. This figure is more than double the figure from a year ago. And, as I mentioned, they predict even more. Over $25 billion in capital expenditures are planned for 2026 . This is the real stake. Invest and build now to win later.
And now the numbers that the " bears" like to miss. Although net profit was weak, I must say that car production has become much more powerful. Gross profit from automobiles reached $4.11 billion. That's up from $3.03 billion a year ago. So, the core business actually became more profitable. The difference is all these additional costs.
But these are expenses they incurred consciously. So, these are all the "red " and "green" flags. But when Wall Street sums it all up, what conclusion do they reach? 40 analysts on Wall Street track Tesla . Consensus rating— “outperforms the market.” And right after this quarter, the big banks lowered their targets.
Let's see what positions the three major firms hold. First, JP Morgan. They lowered the price target to $445 from $475. But they kept the rating "neutral" , not "sell". So, they lowered expectations for the stock, but didn't abandon it. Even now, $445 is significantly higher than today's price. For your money, it means "wait and see." Next up is UBS.
They lowered the forecast even more significantly — from $442 to $385. This is a fairly significant drop. Still neutral, still no way out. This is consistent with the margin compression we talked about earlier. Tesla gets less as the business grows. And for you, this is a warning signal. The last one is Truist .
They cut the most of the three: from 430 all the way down to 370. And Truist voiced the reason out loud. Pressure on margins and cash flows. This means less profit during growth. But still "hold", not " sell". Pay attention to this pattern. All three lowered their forecasts. All three advise holding, not selling.
And each target is higher than the current price . They all agree that Tesla is worth more than it is trading today. They simply lowered the amount they are willing to pay because of all these costs. And these costs are the crux of the whole discussion. If you want to ask your own questions about the stock, my subscribers chat with me every week.
Link in the description. So what does the institutional- level data say? "Smart money " on Wall Street. Let's consider this further. If you don't know how much a company is worth, you're gambling, not investing. Scan the QR code on the screen to learn how to do it yourself. Cap IQ is a $25,000 per year subscription that I'm showing you for free today.
If you want to invest like a professional, you have to see what they see. The analysts I train at top Wall Street banks use Cap IQ. Here is the Tesla valuation dashboard. On Wall Street, Tesla's minimum valuation is 125, and its maximum is 600. The median is 415, which gives 35% upside potential from today's price.
The overall rating is 2.35, which means "outperforms the market." To reach this median, three things must be true. First, operating profit must return to growth. Real businesses need to start making money again. Second, the costs must start to pay off. Robotics and AI should generate real income. Third, demand should strengthen again.
These unsold cars must be sold. Cap IQ does not provide guarantees, but it shows what the largest investors on the planet are betting on. The market sees growth potential, but the profit engine has just stalled. And one big profit came from a rocket company. So whose side is judging this correctly? At the beginning of this video, I offered you a real profit test, and the question was simple.
Did the real business bring in the money, or was it all paper profits? Here's an honest answer. The real business barely made a profit. Operating income was only $398 million. A year ago it was $923 million. This is money that the business earned on its own. They have more than halved. But the profit on paper looked much higher.
It showed 1.33 billion before taxes. So where did this extra billion come from? Not from business, but from SpaceX's tax-free profits. So, for now, the true test of profitability has been failed. Not forever, but now it's a failure. But here's why that's not a reason to sell. Tesla has a stock of 44 billion, and the money keeps coming in.
A weak business doesn't generate as much cash. Understanding big bets is the main skill . I just did this regarding Katie Wood's meta bet . Tesla will report again in about three months. If operating profit increases, the expense is justified, but if it continues to fall, the bears were right. You should always contact a professional investor.
I don't know your individual financial situation. This content is created for educational purposes and is not investment advice. With that in mind, my DCF model shows a stock price of 340.35. With the stock currently at 307.44, this gives an upside potential of just under 10%. So, according to the numbers, Tesla is worth holding on Wall Street .
Stocks trading at a discount of more than 20% are considered a buy because they provide a margin of safety. Well, friends, full transparency about my position. I currently have Tesla in my portfolio. This is my third largest position with a share of 7.9%. And if you want to see my entire portfolio, just scan the QR code on the screen.
Pay attention to one thing in the future. Will operating profit increase next quarter? If so, then the costs are worth it. If not, the bears might be right. This is the only question that matters. Are you bullish on Tesla, or are weak profits and costs ruining everything? .
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