Tesla experienced a significant surge in its shares, with a nearly 14% increase, following the announcement of positive sales predictions and plans to release more affordable models in early 2025. This news came as a relief to investors who had been concerned about the company’s recent struggles, including layoffs, executive departures, price cuts, and the postponement of a meeting with the Indian prime minister.
These plans also helped Wall Street look past Tesla’s weak first-quarter results, which showcased a lower-than-expected profit and the first decline in quarterly revenue in almost four years. Jefferies analysts, led by Philippe Houchois, noted that CEO Elon Musk’s accelerated product launches were aimed at appeasing the market.
The rise in Tesla’s stock price indicated that it could potentially add approximately $50 billion to its market value of $460 billion. It’s worth noting that the company’s stock has experienced a 42% decline this year due to high borrowing costs impacting EV demand and an intense price war in China, which is a major market for Tesla.
Tesla’s growth strategy could also strengthen support for a shareholder vote in May regarding Musk’s $56 billion compensation package. This package had been invalidated by a Delaware court in January. Some investors, like Ross Gerber of Gerber Kawasaki Wealth & Investment Management, had expressed their intention to oppose the package due to concerns over Tesla’s declining share price and a compromised board.
Analysts viewed Tesla’s statement about its cheaper models being produced using existing platforms and production lines as an indication that the company had scaled back its plans for a completely new model priced at $25,000. Morgan Stanley analyst Adam Jonas suggested that the “more affordable” models could be de-contented versions of the Model Y and Model 3 with software and hardware improvements but at lower prices.
During an earnings call, Musk refrained from providing specific details about the affordable models. Instead, he focused on Tesla’s efforts to diversify its business, including ventures into AI, humanoid robots, and operating an autonomous vehicle fleet. These endeavors rely on software and hardware products that Tesla has not yet fully developed.
Investors and analysts have consistently valued Tesla highly due to its advanced driver-assistance technology. As a result, the company’s stock trades at a price-to-earnings ratio of 57.38, significantly higher than Ford’s 7.06 and General Motors’ 4.80.
Prior to the opening bell, Tesla’s shares reached approximately $160 each, causing short-sellers to lose $1.62 billion on paper since the previous day’s close, according to Ortex data and analytics firm. Despite this loss, short-sellers have still managed to make nearly $8 billion in profit this year.
Kathleen Brooks, research director at XTB, praised Musk’s move, stating that it justified negative cash flow and increased capital spending. She contrasted this approach with other companies that are reducing capital expenditures in the current environment. Brooks believes that Tesla’s willingness to invest puts the company in a strong position as the EV market becomes more competitive and price sensitivity rises.
In conclusion, Tesla’s recent share surge was driven by positive sales predictions and plans for more affordable models. Despite facing challenges this year, including layoffs and a decline in share price, CEO Elon Musk’s accelerated product launches have helped appease investors. Tesla’s growth strategy could also support the reinstatement of Musk’s compensation package. Analysts speculate that the affordable models will be de-contented versions of existing models with software and hardware improvements. Furthermore, Tesla’s willingness to invest in AI, humanoid robots, and autonomous vehicles sets it apart from other companies reducing capital spending. Overall, Tesla’s recent developments indicate a determination to stay ahead in the EV market and overcome current challenges.