Tesla earnings have reinvigorated investors but some growth drivers look ‘unsustainable,’ JPMorgan says

Tesla CEO Elon Musk

Tesla’s earnings beat fueled a huge rally for the stock on Thursday, but JPMorgan is urging caution.

Analysts at the bank said that while the strong earnings should boost the stock in the short term, the automaker’s growth drivers might not be sustainable in the coming quarters.

The analysts correctly called the big reaction in the stock on Thursday post-earnings, with shares rising 22%, but they added that they see some caveats to the company’s outlook.

“However, we at the same time see several potentially unsustainable drivers of 3Q’s better earnings and cash flow performance.”

The analysts pointed in particular to Tesla’s near-record sales of regulatory credits. Tesla can sell credits it receives for producing electric cars to other companies that don’t meet government emissions requirements.

It’s a hugely profitable business, and the credits generated $739 million for Tesla in the most recent quarter, the second-highest amount after the previous quarter’s $890 million. While the credits are a huge profit driver in the near term, JPMorgan analysts said that won’t last as other automakers introduce their own EVs and buy fewer credits from competitors like Tesla.

“Investors should be cautious about capitalizing the earnings generated from these (100% margin) credits, given that one of the tenets of the Tesla bull case is the large scale electrification of the automotive industry,” the analysts wrote. “As other automakers broaden their electric offerings, they should over time be in a position to generate their own credits, negating and eventually eliminating the flow of competitor payments to Tesla.”

The analysts also pointed to large working capital benefits, which they say are unsustainable.

Tesla saw a large beat on free cash flow in the most recent quarter, but that was in part due to a large increase in the amount due to its suppliers and other accrued liabilities, the analysts say.

Tesla has only ever generated more cash from an increase in accounts payable in one other quarter, but at that time, deliveries and production both grew much faster, the analysts said. They wrote in the note that this suggests that this driver of the quarter’s strong cash flow is unsustainable and possibly reversing.

“Automakers are expected to generate cash from working capital as sales rise, given timing differences arising from the favorable trade terms they enjoy with suppliers, but digging more deeply into the benefit, we note only in one quarter has Tesla ever generated more cash from an increase in accounts payable than it did in 3Q24,” the analysts said.

The automaker reported earnings per share of $0.62 for the third quarter, outpacing analysts’ expectations of $0.51. Its operating profit came in at $2.7 billion, exceeding expectations of $2.0 billion and marking a 54% increase from a year ago. The company also announced that its Cybertruck has reached profitability.

JPMorgan rates Tesla “Underweight” with a December 2025 price target of $135 a share, 48% lower than its Thursday closing price of $260.48.