Here's What Tesla's Patent Win Could Mean for the Stock

In 2024, autonomous vehicle (AV) tech in the U.S. has gained renewed momentum after a two-year stall. Despite setbacks, ongoing investments and tech upgrades hint at steady - though slow - progress toward widespread AV adoption. Waymo, the self-driving startup under Alphabet (GOOGL)(GOOG), continues to lead the pack, with advancements in sensor technology and the growth of its robotaxi service keeping it at the forefront, despite regulatory scrutiny.

Elon Musk-led Tesla (TSLA), often seen as the electric vehicle (EV) giant that’s still trailing in AV pursuits, has been facing some speed bumps with Full Self Driving (FSD). But just when it seemed like its competitors were pulling out ahead, news broke that the EV maker has secured a game-changing patent in autonomous driving tech. This patent could be Tesla’s ticket to license its technology to other automakers, potentially unlocking a fresh revenue source.

As investors pile into TSLA stock and send the company soaring past a $1 trillion valuation in response to Trump’s election win, let’s dig into the EV giant’s recent patent victory, and find out what it could mean for Tesla’s bottom line.

About Tesla Stock

Texas-headquartered Tesla, Inc. (TSLA), with a newly minted market cap of $1.1 trillion, designs and manufactures BEVs, solar energy generation solutions, and energy storage devices. Plus, Tesla increasingly emphasizes offerings centered around artificial intelligence (AI), robotics, and automation.

Tesla has generated staggering returns for shareholders since its initial public offering (IPO) in 2010, delivering jaw-dropping 1,870.5% returns over the past decade. However, after a strong 2023, shares faced some pressure this year, and spent most of 2024 trading in negative territory.

But TSLA jumped nearly 15% on Nov. 6 alone, riding a wave of optimism following Trump’s re-election - an event investors see as fueling growth for the EV giant. Trump’s praise for Musk as a “genius” only bolstered sentiment, catapulting Musk’s net worth by $15 billion overnight. Tesla stock is now up 43% in the past 5 days, and nearly 40% YTD.

The stock currently trades at 128.7 times forward adjusted earnings and 10.3 times sales – a premium to many of its Magnificent 7 peers, as well as TSLA’s own 5-year average multiples.

Tesla Soars After Q3 Earnings

While the election has taken over as a key catalyst in light of the Musk-Trump partnership, Tesla’s Q3 earnings results in late October also sparked a major surge, pushing its stock up 21.9% to mark its best day in a decade. Revenue climbed to $25.2 billion, up 8% year-over-year, with key segments like Automotive and Energy Generation driving the growth. Revenue from its Full Self-Driving system hit $326 million.

Despite missing revenue estimates, Tesla broke a streak of earnings misses by posting adjusted EPS of $0.72, well above Wall Street’s estimate.

After two quarters of slowed production, Tesla reversed course, building 469,796 vehicles, up 9% year over year, and delivering 462,890 vehicles, a 6% rise. The Supercharger network expanded, too, growing from 5,595 to 6,706 stations within a year, while operating margins strengthened to 10.8%, showcasing efficiency gains.

Plus, Tesla’s commitment to trimming costs paid off significantly, with free cash flow nearly tripling to $2.7 billion. Net cash from operating activities almost doubled, hitting $6.26 billion, contributing to a strong cash position of $33.6 billion - well above its short-term debt of $2.3 billion.

Analysts tracking Tesla predict fiscal 2024 EPS to be around $1.96, with the bottom line estimated to surge 39.5% annually to $2.73 per share.

Tesla’s Q3 earnings call featured some typically bold predictions, with CEO Elon Musk predicting Cybercab robotaxi production by 2026 and driverless ride-hailing in Texas and California soon. Yet, with Musk’s history of missed deadlines, investors remain cautious.

While the robotaxi could diversify Tesla’s revenue and generate billions annually, the company faces intense competition from Waymo, General Motors Company (GM), and Uber Technologies (UBER), which are all racing to dominate autonomous tech. Regulatory hurdles and the need for a truly future-ready vehicle add pressure.

Tesla Patent Paves the Way for FSD Licensing

On Nov. 5 - just in time to get buried under an onslaught of election headlines - Tesla snagged a groundbreaking patent for a system that adapts neural networks on various hardware platforms, hinting at big moves for its FSD technology. Filed in March last year, this patent is fueling speculation, especially after independent researcher SETI Park suggested Tesla could be eyeing other brands for FSD deployment.

While Tesla has not confirmed any licensing plans, this patent could help its neural networks adapt to the diverse hardware constraints in autonomous vehicles or even mobile devices. Imagine Tesla’s AI prowess expanding beyond its own EVs - this patent might be Musk’s ticket to transforming autonomous tech at scale.

What Do Analysts Expect for Tesla Stock?

Following the recent U.S. election outcome, Bank of America raised TSLA’s price target from $265 to $350. The firm kept its “Buy” rating, highlighting potential regulatory shifts that could benefit Tesla under the Trump administration. Analyst John Murphy noted that while most policies don’t directly impact Tesla, a nationwide framework for regulation of AVs could be a positive.

BofA raised its EV/Sales multiple to 10x from 8x and extended its valuation horizon to 2026. With less regulatory scrutiny expected on FSD and Trump’s pro-business stance on environmental rules, the brokerage firm expects Tesla to see smoother sailing for its robotaxi plans and reduced competition from both domestic and overseas EV rivals.

Tesla also got a new Street-high price target of $400 today from longtime bull Dan Ives of Wedbush - along with BofA, another one of the relatively few firms to maintain an “Outperform” rating on the stock.

"We estimate the AI and autonomous opportunity is worth $1 trillion alone for Tesla, and we fully expect under a Trump White House these key initiatives will now get fast tracked as the federal regulatory spiderweb that Musk & Co. have encountered over the past few years around FSD/autonomous clears significantly under a new Trump era," explained Ives in raising his price target.

TSLA stock has a consensus “Hold” rating overall. Among the 38 analysts in coverage, 10 suggest a “Strong Buy,” two advise a “Moderate Buy,” 17 recommend a “Hold,” one gives a “Moderate Sell,” and the remaining eight analysts advocate for a “Strong Sell.” The new price target from Ives is about 14% higher than today's close.

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On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.