Better-than-expected deliveries may not alleviate profit pressure! JPMorgan Chase: Tesla's profitability may accelerate from 2028 onwards.

Tesla delivered 486,500 vehicles in the third quarter, exceeding market consensus by about 5%. However, JPMorgan Chase maintained a neutral rating and a target price of $415 after the data was released. JPMorgan Chase believes that Tesla's impressive delivery figures cannot mask the recent profit pressure, and the EPS inflection point will not come until 2028, at which time it may start to achieve a compound annual growth rate of more than 50%.

Investors are currently facing a period of compressed profit margins. JPMorgan Chase's adjusted EPS forecasts for Tesla in 2026 and 2027 are $1.43 and $1.45, respectively, significantly lower than the Bloomberg consensus forecasts of $1.65 and $2.22.

Based on the current share price of $354, Tesla corresponds to a price-to-earnings ratio of approximately 248 times in 2026. JPMorgan Chase had previously maintained an "underweight" rating from October 2023 until it was upgraded to "neutral" in June of this year—even so, this report's near-term earnings forecast is still significantly lower than the market's.

Delivery exceeded expectations, but energy storage fell short of expectations.

Third-quarter deliveries were about 1% higher than JPMorgan's expectations, and about 5% and 3% higher than the company's consensus and Bloomberg consensus, respectively. Model 3/Y deliveries were approximately 478,200 units, 6% higher than the company's consensus, which was the main contributor to the better-than-expected performance; other models delivered approximately 8,300 units, higher than JPMorgan's expectation of 6,500 units, but lower than the company's consensus of 11,300 units.

Regional performance varied significantly. Europe was a bright spot, with FSD (Full Self-Driving) already receiving regulatory approval in Croatia, Slovenia, and the Czech Republic. Sales in South Korea and Australia increased by 15% and 21% year-on-year, respectively—JPMorgan Chase considers the latter two markets as effective benchmarks for increased demand following FSD activation. However, the EU-wide FSD approval vote has been postponed from October to December. Sales in the US market declined by 26% year-on-year, but this was mainly due to a high base effect caused by the rush to buy before the expiration of last year's federal tax credit; the year-on-year pressure is expected to ease significantly from the fourth quarter onwards.

Energy storage performance fell short of expectations. Deployment in Q3 was approximately 13.7 GWh, below JPMorgan's forecast of 15.0 GWh, Bloomberg consensus's 15.3 GWh, and the company's consensus of 15.9 GWh, partially offsetting the positive impact of vehicle deliveries. Regarding Robotaxi, the number of registered Cybercabs in Texas has exceeded 100, but the active fleet size remains relatively small. The progress of the FSD v15 release will be a key focus in the Q3 earnings report on October 21st.

Recent profit pressure: Low gross margins coupled with soaring expenses

JPMorgan Chase maintained its lower-than-consensus EPS forecast due to weak automotive gross margins and rapidly rising operating expenses.

According to its forecast, Tesla's overall gross margin will be 18% in both 2026 and 2027, only recovering to 20% in 2028. The narrowing of EBIT margin is even more significant: only 1.3% in 2026, further decreasing to 1.1% in 2027, and recovering to 3.5% in 2028.

The pressure on spending comes from two directions. R&D expenses are expected to jump from $6.4 billion in 2025 to $9.6 billion in 2026, and are projected to reach $11.8 billion and $13.4 billion in 2027 and 2028, respectively, reflecting large-scale investments in new businesses such as Robotaxi, Optimus humanoid robots, and FSD. Capital expenditures are equally aggressive: projected to reach $23.3 billion in 2026, representing 21.5% of revenue, and $24 billion and $25 billion in 2027 and 2028, respectively.

Large-scale spending directly leads to negative free cash flow. JPMorgan Chase predicts that Tesla's free cash flow will plummet from a positive $7.2 billion in 2025 to a negative $10 billion in 2026, followed by negative $11.9 billion and negative $9.5 billion in 2027 and 2028, respectively. The company expects to issue approximately $30 billion in net debt between 2026 and 2028, turning its balance sheet from net cash to net debt.

The 2028 Turning Point and the $3.9 Trillion Vision

JPMorgan Chase projects that adjusted EPS will jump from $1.45 in 2027 to $2.15 in 2028 (a 48% increase), and then accelerate to $3.50 in 2029 and $6.00 in 2030, representing a compound annual growth rate of over 50%.

The main driver of the profit acceleration is not traditional automobiles—automotive revenue only increased from $76.9 billion to $91.8 billion between 2026 and 2028—but the rapid expansion of service revenue (including FSD subscriptions, charging networks, etc.): from $18.3 billion in 2026 to $37 billion in 2028, and reaching $83.6 billion by 2030.

In terms of valuation, JPMorgan Chase uses a 50/50 weighted approach of P/E and a 50/50 split-to-the-pan (SoTP) valuation method to arrive at a target price of $415. The P/E method assigns a P/E ratio of 75 based on 2030 EPS, resulting in a present value of $354 per share. The SoTP method paints a picture of the 2035 landscape: Robotaxi contributes approximately $1.58 trillion in market capitalization with $319 billion in revenue and a 5x EV/Revenue ratio; Optimus humanoid robots contribute $705 billion with $47 billion in revenue and a 15x valuation ratio; and high-margin businesses such as FSD subscriptions and AI computing licenses contribute over $1 trillion in total, implying an overall enterprise value of approximately $3.9 trillion, or $476 per share.

However, JPMorgan Chase points out that these new addressable markets are unlikely to see a substantial inflection point before 2029. Until the $3.9 trillion vision is realized, stock price movements will depend more on the progress of Robotaxi and Optimus, while large AI-related IPOs may divert funds during this period. Among downside risks, JPMorgan Chase mentions the potential damage to the brand from the CEO's involvement in political activities, as well as uncertainties surrounding Robotaxi and Optimus in terms of execution and regulation.

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