Recent,$Tesla (TSLA.US)$A series of “bad news” occurred, causing the electric car maker's stock price to drop by about 14% in April, and to 39% this year.
The “good news” (if you can understand it that way) is that the problem that frightens investors essentially boils down to one thing — Tesla's current product lineup is shrinking.
On the face of it, demand for cars seems pretty good. In 2023, Tesla sold 654,900 vehicles in the US, accounting for more than 50% of the market share. At the same time, however, the sales growth rate was disappointing. Tesla's sales volume in the US increased 25% year over year, which is lower than the overall growth rate of about 45% in the US market. Additionally, Tesla's global sales increased by 38%, falling short of the long-term target of 50%.
In the first quarter of this year, Tesla delivered 387,000 vehicles, a year-on-year decrease of nearly 9%, 20,000 fewer than Wall Street's lowest estimate.
To stimulate demand, Tesla provided incentives to buyers in the US market equivalent to nearly 12% of the average transaction price in March, which is almost double the industry level. These measures point to a problem: it's getting harder to sell cars.
However, Tesla CEO Elon Musk (Elon Musk) doesn't think so. “The first quarter was difficult for every car company.” Musk wrote after the company released delivery data for the first quarter.
Tesla attributed part of the decline in sales to production restrictions in the US and Europe and logistics difficulties caused by the Red Sea conflict. In response, J.P. Morgan (J.P. Morgan) analyst Ryan Brinkman (Ryan Brinkman) said that the decline in Tesla's sales in the first quarter was a “demand issue.” The layoffs are proof — on April 14, Tesla decided to lay off 14,000 employees, with a 10% layoff ratio.
Other car manufacturers are also facing difficulties.
Freedom Capital Markets analyst Mike Ward (Mike Ward) said Tesla is “chasing the ball rolling down the mountain.” He saw the similarities between Tesla and General Motors (GM). In the 1980s and 90s, GM's financial success covered up a decline in market share. “The Tesla brand is well known, but there are some real challenges.”
Wall Street's opinion on how to “catch up” is quite uniform — Tesla needs to update and expand its product lineup, especially to produce the low-cost electric model called “Model 2” by Wall Street as soon as possible. The car is priced at around $25,000 and is not expected to hit the market until 2025.
Low-cost electric cars are very important in the US market. According to Kelly Blue Book statistics, there are about 275 new cars on sale in the US, and only 8 of them have an average transaction price of less than 25,000 US dollars. The Model 3 starts at around $39,000 in the US. The Model 2 is a new opportunity for Tesla to take the lead in the US market.
Deutsche Bank (Deutsche Bank) analyst Emmanuel Rosner (Emmanuel Rosner) downgraded Tesla's stock rating from “buy” to “hold” on April 18, and the target price was lowered from $189 to $123. One important reason is “the possibility of Model 2 going public in 2025 (not high).”
Canaccord analyst George Gianarikas (George Gianarikas) also said, “The next generation car Model 2 is critical and is expected to drive Tesla's growth engine to accelerate again.”
On April 5, foreign media reported that Tesla was preparing to terminate the Model 2 project and develop autonomous taxis instead, causing Tesla's stock price to drop. Musk denied these reports, saying that the company will launch the robot taxi robotaxi on August 8.
Gianarikas has high hopes for autonomous driving and thinks robotaxis are good, but Tesla is the best (Model 2 and robotaxi) to “do both.”
Tesla will announce its first-quarter earnings report after the market on April 23. Analysts want to hear from Musk. Wedbush analyst Dan Ives (Dan Ives) said, “We need to understand Musk's reasons for (layoffs) cost cuts, the company's future strategy... product line and overall vision.”
The market believes that only a fully committed Musk can boost Tesla (performance and stock price), not someone who has multiple jobs and runs multiple companies (including x and artificial intelligence startup xAI). “Investors want Musk to be the 'adult in the room'.” Ives said.
This isn't the first time investors have lost confidence and questioned Musk. “I hope [Musk] can bring a glimmer of hope... to bring some light to the new models. People need hope.” Gianarikas added.
The same goes for stocks. At the close of trading on April 18, Tesla's stock price fell 3.55% to $149.93; while the S&P 500 index and Nasdaq index fell 0.22% and 0.52%, respectively. As of early trading on April 19, Tesla was slightly up 0.18%.
Editor/Jeffrey