With Tesla's (TSLA 1.32%) core electric vehicle business struggling this year, analysts and investors were anxious to get a glance at how EV deliveries would trend in the third quarter. The company delivered big time, reporting close to 497,100 deliveries, smashing Wall Street estimates of of 447,600. However, Tesla's stock dipped immediately following the news, as the strong beat was not enough to excite Wall Street. What gives?
Expiration of the EV tax credit
Tesla's third-quarter deliveries of nearly 497,100 blew out estimates and rose 7% year over year. That's a sharp reversal from the first two quarters of 2025, when the company reported deliveries that fell 12% year over year compared to the first half of 2024.
Image source: Tesla.
But analysts clearly knew the quarter was going to be strong because President Trump's big legislative spending bill passed by Congress earlier this year eliminated the $7,500 EV tax credit on Sept. 30, the last day of the third quarter. It became evident that consumers would likely rush to purchase Teslas before the cost of the vehicles increased.
According to Gene Munster, managing partner at Deepwater Asset Management, Tesla saw a 35% year-over-year increase in its U.S. sales in the third quarter, which he attributes to the rush before the EV tax credit expiration. "Investors should largely throw out the positive number," Munster said, noting that the "the future will be autonomy."
Still, other analysts were more optimistic. Morgan Stanley analyst said that Q3 deliveries came in at the top end of hedge fund estimates ranging from 450,000 to 500,000 deliveries. Wedbush Securities analyst Dan Ives called the quarter a "massive bounceback" and said he is still high on the company's autonomous vehicles and humanoid robotics businesses, which Ives and Wedbush analyst Scott Devitt think could catapult Tesla to a $2 trillion to $3 trillion market cap by 2026 or 2027.
Ultimately, I'm guessing the disappointing share action could be attributed to Tesla stock's recent run-up. The stock is up close to 60% over the past six months.
Current state of the bull-bear debate
Tesla is still one of if not the most hotly debated stocks on Wall Street, with the bulls confident that it is the most innovative AI company in the world and the bears pointing to its staggering valuation of nearly 250 times forward earnings. As of this writing, Tesla trades at nearly $440 per share. The lowest Wall Street price target is an astounding $19 per share, while the high is $600 per share, which shows just how split the Street is on the name.
But one thing I think both the bulls and bears agree on is that the future of Tesla is going to come down to its autonomous driving business, for which Tesla is in the early stages of building out an autonomous ride-hailing fleet, and the humanoid robots business. If these businesses are as successful as analysts like Ives believe, than the stock can keep moving higher. But hiccups or a more competitive market than people think could send it tumbling.
Tesla has begun to launch pilot autonomous driving programs in select cities, while humanoid robots are still in prototype stage. The advantage of Tesla's robotaxi business is that the vehicles can reportedly be built at a fraction of the cost of rival WayMo, which is also operating in several cities. However, it remains to be seen whether the technology can truly be perfected and deemed safe enough to be fully commercialized.
The simple reason I choose to avoid Tesla is that I think the market has assumed too much success in businesses that the public still knows far too little about. If Tesla is successful and jumps to $600 per share, that's 40% upside, but if robotaxis and humanoid robots don't work out as well as hoped, who knows that the stock is worth. As stocks get larger and surpass a $1 trillion market cap, maintaining the growth to hold such a high valuation becomes more difficult. The risk-reward proposition is not attractive to me.
