Why Tesla, Inc Stock Surged Again Today

What happened

Shares of electric-car company Tesla (NASDAQ:TSLA) continued their upward march on Friday. The stock is up 7.9% as of 1:22 p.m. EDT. The gain adds to a big jump in Tesla's stock price on Thursday, bringing the stock's total gain since market close on Wednesday to more than 16%.

Friday's gain likely reflects further optimism from investors as they reflect on the company's surprise profit for its third quarter, which was reported after the market closed on Wednesday. Also possibly contributing to the stock's rise on Friday, Tesla released an update on recent initiatives it has put in place to improve the safety of its workplace.

Model 3. Image source: Tesla.

So what

For its third quarter, Tesla reported revenue and non-GAAP earnings per share significantly ahead of analyst estimates. But it was the company's GAAP profitability and free cash flow that really took investors by surprise. Tesla's GAAP net income was $312 million, up from a GAAP loss of $619 million in the year-ago quarter. This translated to earnings per share of $1.75, up from a loss per share of $3.70 in the year-ago quarter. Free cash flow for its third quarter was $881 million.

The profitability was primarily achieved through improved economies of scale thanks to soaring Model 3 deliveries.

Another reason for investor optimism on Friday may be Tesla's update from its environmental, health, and safety chief, Laurie Shelby. Shelby detailed a number of initiatives she's been able to implement since joining Tesla one year ago. Those include the launch of a new and improved onsite occupational health clinic, a program aimed to proactively deploy athletic trainers to factory lines and help employees improve ergonomic safety, a program that rewards employees for identifying safety risks, and more.

Now what

Regarding its recent solid quarter, the expectations for the automaker are high. Now Tesla will need to show investors it can remain profitable on a sustainable basis. Without sustained profits, the automaker will need to raise capital through debt or equity to fund its ongoing expansion.

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