$Tesla (TSLA.US)$The quarterly report fell short of expectations. Coupled with the recent rise in stock prices of traditional car companies, it should have indicated that investors are not optimistic about electric vehicles. However, the direction of things is somewhat complicated.

Tesla is no longer in a growth pattern — earnings of 45 cents per share in the first quarter were down 47% year over year, a figure that was only better than a few analysts' expectations (20 cents). Even so, Tesla's stock price has risen sharply.

On the second day of earnings release (April 24), Tesla's stock price surged 12.06% to $162.13, making it the best performing day since January 3, 2022, when it rose 13.5%; the S&P 500 and NASDAQ indices rose 0.02% and 0.1%.

During this period, Tesla's stock price once reached 167.97 US dollars, an increase of nearly 16%. This was the biggest increase since March 9, 2021, when the stock price rose 19.6%.

Changing the product matrix was the driving force behind Tesla's stock price increase, recovering 42% of this year's decline in a single day. The company said it is speeding up production of the next generation model, earlier than previously anticipated for the second half of 2025.

This means that the market's long-awaited low-cost model (commonly known as the Model 2) may be brought to market faster. More importantly, vehicles will become an urgent priority for the company.

“[Tesla's] performance this quarter was a disaster.” Wedbush (Wedbush) analyst Dan Ives (Dan Ives) said, but importantly, Tesla is not only focusing on the autonomous robot taxi Robotaxi, but is also speeding up the launch of the low-cost Model 2. This is a wise strategic plan that Wall Street wants to see.

Bernstein (Bernstein) analyst Toni Sacconaghi (Toni Sacconaghi) wrote in the report that Tesla's strategic shift will “reassure investors.” At the same time, Sakonagi also expressed doubts about this — can Tesla really launch an important new model in less than a year?

Tesla has been delaying production of low-cost models for many years, and now it is a new challenge for the company. In 2019, Tesla CEO Elon Musk (Elon Musk) developed the Cybertruck, a massive and expensive electric pickup truck.

Furthermore, “Elon Musk” (Elon Musk) author Walter Isaacson (Walter Isaacson) also claimed that Musk preferred to produce robot taxis before Model 2 was released.

Musk's robot taxi strategy is partly because he believes Tesla can sell millions of electric cars that cost between $40,000 and $50,000 a year.

There was a time when that logic did hold true. From 2021 to 2022, Tesla can sell the cars it produces for almost any price.

Some time later, other automakers adopted a similar strategy — targeting high-end buyers, leading to an oversupply of expensive EVs in the EV market and a stagnation in the EV penetration rate.

Except for the Chinese market, of course. Currently, the penetration rate of pure electric vehicles in China is close to 25%. However, competition is fierce, with dozens of models of cars at various price points vying for market share.

Citi analyst Jeff Chung (Jeff Chung) predicts that in 2024 and 2025, China's electric vehicle growth will mainly come from models under $30,000, and Tesla did not offer such products.

For non-Chinese buyers, they are flocking to hybrid cars because there are few options for low-cost EVs. In the first quarter, sales of traditional and plug-in hybrid models in the US and Europe were close to 1.7 million units, up about 24% year on year; sales of pure electric vehicles were about 710,000 units, up about 5% year on year.

The slowdown in sales of pure electric vehicles will not hurt traditional car companies, making it difficult for them to transition to electric vehicles. From the beginning of the year until the close of trading on April 23, Ford Motor (F), General Motors (GM), and Toyota (TM), which focuses on hybrid models, changed 60% more than Tesla.

Morgan Stanley (Morgan Stanley) analyst Adam Jonas (Adam Jonas) wrote, “Although electric vehicles are the future trend, it is still (internal combustion engine) products that generate profits and fund dividends and repurchases.”

Jonas pointed out that the slowdown in electric vehicle sales has provided opportunities for traditional car companies. They can delay electric vehicle plans and reduce development costs, while cash flow from traditional car businesses will continue to pour in.

GM's first-quarter results prove this. Although the data implied an opaque loss of electric vehicles, the company's bicycle operating profit was about 4,300 US dollars, which was higher than Tesla's operating profit of 3,000 US dollars. A year ago, Tesla Bike's operating profit reached 6,300 US dollars.

However, GM and Ford have not escaped their strategic predicament. After losing 4.7 billion US dollars in 2023, the latter's electric vehicle business is expected to lose 5.5 billion US dollars in 2024. GM's situation is probably similar, but detailed data like Ford's has not been disclosed. Ford decided in 2023 to divide the electric vehicle business into a separate division.

Freedom Capital Markets analyst Mike Ward (Mike Ward) said Ford lost tens of thousands of dollars for every electric vehicle sold, but that's not too bad — this figure includes relatively high R&D expenses and capital expenses, and it takes billions of dollars to develop and manufacture cars, and few traditional car companies can reach the scale needed to make electric vehicles profitable.

Ward doesn't think traditional car companies' electric vehicle business is dying out. Instead, he believes that Ford and GM are trying to build a better Tesla Model Y, which is a mistake — there is already an oversupply of expensive electric cars. Ward wants to see the two companies strategically focus on the areas where patents are strongest: trucks and commercial fleets.

Ward said that in the commercial market, compelling application cases and social demand will push (electric vehicle penetration rate) to 35% over the next 5-10 years. “I'd rather see both companies invest in pure electric vehicles than replicate the takeover boom of the 1990s.” Ward said.

If the penetration rate reaches 35%, sales of electric vehicles are expected to reach about 35 million to 40 million units in 2030, an increase of about four times over 2023.

There is still room for electric vehicles to grow, enough for many car companies to benefit from it — if guided by the right strategy.

Editor/Jeffrey