Musk promises 'more affordable' cars — but what did he mean?
Tesla shares surged nearly 14% on Wednesday after the electric-car maker eased some worries about slowing growth with a prediction that sales would rise this year and plans to roll out more affordable models in early 2025.
Investors had been bracing for the worst after a tumultuous week at Tesla that saw big layoffs, executive exits, price cuts and the postponement of a highly touted meeting with the Indian prime minister.
The newly minted plans also helped Wall Street shrug off the company’s weak first-quarter results, including a lower-than-expected profit and the first drop in quarterly revenue in nearly four years.
“First impression for us is CEO Elon Musk is appeasing the market by accelerating new product launches,” Jefferies analysts led by Philippe Houchois said in a note.
Based on the premarket jump in its stock price, Tesla was on track to add nearly $50 billion to its market value of $460 billion. The stock has slid 42% this year as high borrowing costs have dampened demand for EVs and a price war in major market China intensified.
Tesla’s growth strategy could strengthen support for a shareholder vote in May on Musk’s $56 billion compensation package, which was voided by a Delaware court in January.
Some Tesla investors — such as Ross Gerber, president and CEO at Gerber Kawasaki Wealth & Investment Management — had said in recent days that they planned to oppose the package, citing a decline in Tesla’s share price and a compromised board.
‘De-contented Model Y/Model 3’
Several analysts took Tesla’s remarks that its cheaper models would be built using current platforms and production lines as further confirmation that it had retreated from more ambitious plans for an all-new model that had been expected to cost $25,000.
“We read ‘more affordable’ as potentially de-contented Model Y/Model 3 versions with improvements in software and AI/hardware capability, but at lower prices,” Morgan Stanley analyst Adam Jonas said.
Musk declined to provide details of the more affordable models and instead spent much of the earnings call on Tesla’s efforts to diversify its business into AI, humanoid robots and operating a fleet of autonomous vehicles — all based on software and hardware products it has not yet fully developed.
Investors and analysts have long given Tesla a premium valuation for efforts such as its driver-assistance technology.
Tesla’s stock trades at 57.38 times its 12-month forward estimated earnings, a price-to-earnings ratio that is vastly higher than Ford’s 7.06 and General Motors’ 4.80.
Tesla’s shares jumped to roughly $160 apiece in trading before the bell, a price at which short sellers have lost $1.62 billion on paper since Tuesday’s close, according to data and analytics firm Ortex.
However, short-sellers are still up almost $8 billion in profit this year.
“While the details (on the new models) are thin on the ground, this was a clever move by Musk, as it justifies the negative cash flow and the higher capital spend,” said Kathleen Brooks, research director at XTB.
“Unlike many companies that are shrinking capital spend in the current environment, Tesla is going against the grain … and puts (it) in a strong position as the EV market gets more competitive and price sensitivity increases,” Brooks added.
