Tesla shares jump on promise of ‘more affordable’ cars
EV maker says it is working on new models that will use current production lines
24 April 2024 - 15:11
byAditya Soni and Danilo Masoni
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Tesla Model 3 vehicles are seen for sale at a Tesla facility in Fremont, California, U.S., May 23, 2023. REUTERS/Carlos Barria/File Photo
Bengaluru/Milan — Tesla shares surged 10% on Wednesday after the electric vehicle (EV) maker eased some worries about growth with a prediction that sales would rise this year and said it would roll out more affordable models in early 2025.
The news cheered up investors who were bracing for the worst after a tumultuous week at Tesla that saw big layoffs, executive exits, price cuts and the postponement of a touted meeting with the Indian prime minister.
It also helped Wall Street shrug off the company’s weak results, which included its first quarterly revenue decline in nearly four years and a lower-than-expected profit.
“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.
The company was on track to add nearly $50bn to its market value, based on premarket movements. Its stock is down 42% so far this year amid fierce competition and falling sales.
The growth strategy could strengthen shareholder support for a vote in May on the $56bn compensation package for Musk that 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.
Several analysts took Tesla’s remarks that its cheaper models would be built using current platforms and production lines as a sign 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 with artificial intelligence, humanoid robots and operating a fleet of autonomous vehicles — all based on software and hardware products it has not yet fully developed.
“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. This puts it in a strong position as the EV market gets more competitive and price sensitivity increases,” Brooks said.
Meanwhile, Tesla expects to book more than $350m in costs in the current quarter for the mass layoffs it began last week, the carmaker disclosed on Wednesday, as it shifts focus to more affordable models that it plans to introduce by early 2025.
The company is laying off about 10% of its global workforce to help prepare for the “next phase of growth” by reducing costs and improving productivity.
The EV maker said on Tuesday that it was working on “new models” that would use its current platforms and production lines, a move that is expected to let it better control capital expenditures during “uncertain times.”
Wall Street analysts expect Tesla to report a profit of $2.24bn for the second quarter, according to LSEG data.
While that would be lower than the year-ago figure, it is an improvement from the $1.59bn first-quarter profit, its lowest in three years, it posted on Tuesday.
Still, the company’s shares were up 12% in premarket trading as its forecast of a sales increase this year and the promise of more affordable models eased fears of slowing growth.
The demand for EVs has slowed in the past year as high borrowing costs prompt consumers to rethink big-ticket purchases, forcing companies from Tesla to Ford and General Motors to scale back their expansion plans.
Tesla, which is planning to use its existing factories to build the new models, reiterated on Wednesday it expected capital expenditure to exceed $10bn in 2024 and to be between $8bn and $10bn in each of the following years.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Tesla shares jump on promise of ‘more affordable’ cars
EV maker says it is working on new models that will use current production lines
Bengaluru/Milan — Tesla shares surged 10% on Wednesday after the electric vehicle (EV) maker eased some worries about growth with a prediction that sales would rise this year and said it would roll out more affordable models in early 2025.
The news cheered up investors who were bracing for the worst after a tumultuous week at Tesla that saw big layoffs, executive exits, price cuts and the postponement of a touted meeting with the Indian prime minister.
It also helped Wall Street shrug off the company’s weak results, which included its first quarterly revenue decline in nearly four years and a lower-than-expected profit.
“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.
The company was on track to add nearly $50bn to its market value, based on premarket movements. Its stock is down 42% so far this year amid fierce competition and falling sales.
The growth strategy could strengthen shareholder support for a vote in May on the $56bn compensation package for Musk that 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.
Several analysts took Tesla’s remarks that its cheaper models would be built using current platforms and production lines as a sign 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 with artificial intelligence, humanoid robots and operating a fleet of autonomous vehicles — all based on software and hardware products it has not yet fully developed.
“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. This puts it in a strong position as the EV market gets more competitive and price sensitivity increases,” Brooks said.
Meanwhile, Tesla expects to book more than $350m in costs in the current quarter for the mass layoffs it began last week, the carmaker disclosed on Wednesday, as it shifts focus to more affordable models that it plans to introduce by early 2025.
The company is laying off about 10% of its global workforce to help prepare for the “next phase of growth” by reducing costs and improving productivity.
The EV maker said on Tuesday that it was working on “new models” that would use its current platforms and production lines, a move that is expected to let it better control capital expenditures during “uncertain times.”
Wall Street analysts expect Tesla to report a profit of $2.24bn for the second quarter, according to LSEG data.
While that would be lower than the year-ago figure, it is an improvement from the $1.59bn first-quarter profit, its lowest in three years, it posted on Tuesday.
Still, the company’s shares were up 12% in premarket trading as its forecast of a sales increase this year and the promise of more affordable models eased fears of slowing growth.
The demand for EVs has slowed in the past year as high borrowing costs prompt consumers to rethink big-ticket purchases, forcing companies from Tesla to Ford and General Motors to scale back their expansion plans.
Tesla, which is planning to use its existing factories to build the new models, reiterated on Wednesday it expected capital expenditure to exceed $10bn in 2024 and to be between $8bn and $10bn in each of the following years.
Reuters
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