'Tesla magic is back' says BCA - double upgrades autos sector

Investing.com -- BCA Research upgraded its view on the Auto&Components sector from underweight to overweight in a note this week, citing a strong recovery led by Tesla (NASDAQ: TSLA)'s unexpected Q3 performance.

Tesla, which dominates the sector by accounting for 80% of its market capitalization, has reignited investor confidence, driving the sector's improved outlook.

"Tesla never fails to surprise investors," BCA noted, pointing to the electric vehicle maker's 22% stock surge following its Q3 results, which reversed all of October's losses.

This marks a major shift after four consecutive quarters of disappointment amid weaker demand and rising competition from Chinese EV manufacturers.

Tesla's Q3 earnings provided multiple bright spots. Earnings rose 9% year-over-year, defying expectations of an 11% decline. While sales missed estimates by 1%, BCA believes this is a minor setback: "Sales will rebound further in 2025," they wrote.

Margins also improved, with Tesla's CFO Vaibhav Taneja noting, "Our operating expenses declined quarter over quarter and on a year-on-year basis."

Looking ahead, Tesla is targeting 20-30% growth in deliveries by 2025, with the introduction of new products such as economy EVs in Q1-25 and robotaxis by Q2-25.

Production of the long-awaited Cybertruck is also accelerating, turning the vehicle into a profitable venture.

Furthermore, BCA explained that Tesla's capital expenditure is another area of strength, with $3.5 billion spent in Q3 alone—largely directed toward AI compute investments.

BCA emphasizes that Tesla's turnaround has broad market implications. "Tesla's price is still 30% below its peak, and the stock is likely to continue to outperform the market as long as the economy avoids a recession," BCA noted.

"We will overweight the industry on a tactical investment horizon," concluded the firm.

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