Tesla’s market value increased by a whopping 12%. The surge in the company’s stock price came in the wake of CEO Elon Musk’s announcement of the company’s plans to expedite the release of cost-effective electric vehicles (EVs), a strategy aimed at reviving dwindling profits.
The announcement was designed to instill confidence among Wall Street investors. These stakeholders had been grappling with the company’s recent earnings report which revealed that profits had sunk to their lowest level in any quarter since 2021.
Senior analyst at Wedbush Securities, Dan Ives, suggested that Tesla and Musk were weathering a “Category 5 storm” following years of unprecedented success.
Despite the challenging circumstances, Ives maintained a positive investment outlook, buoyed by the prospect of the “Model 2.5”. This low-cost Tesla vehicle, as hinted by Musk, could potentially be on the roads by early next year. Ives asserted that this affordable EV could be a pivotal factor in Tesla’s volume turnaround in 2025.
During the earnings call, Musk refrained from divulging details of these cheaper models, choosing instead to focus on Tesla’s attempts to expand its business into artificial intelligence (AI), humanoid robots, and autonomous vehicles operation. All these areas are predicated on software and hardware products that are still in the development phase.
Several analysts interpreted Musk’s comments on the affordable models’ production using existing platforms and production lines as an indication that Tesla had stepped back from more ambitious plans for an all-new model that had been projected to cost $25,000.
Despite the new plans, Wall Street was able to overlook Tesla’s weak first-quarter results. The company’s stock has plunged 35% since the start of the year due to high borrowing costs that have curtailed demand for EVs and an escalating price war in China, a major market.
In the first quarter of 2024, Tesla’s revenue fell by 9% to $21.30 billion from $23.33 billion in the previous year, marking the largest decline since 2012. Analysts had projected revenues of $22.15 billion. Moreover, Tesla’s operating margin significantly contracted in the first quarter, dropping from 11.4% last year to just 5.5%.
Notwithstanding these challenges, the market seemed to be placated by Musk’s pledge to accelerate new product launches. Analysts anticipate that Tesla’s growth strategy could solidify support for a shareholder vote in May on Musk’s $56 billion compensation package, which was annulled by a Delaware court in January.
Some Tesla investors expressed plans to oppose the package, citing a decline in Tesla’s share price and a compromised board.
Musk had previously indicated his intention to introduce the Model 2, a low-cost option priced at around $25,000. However, a recent Reuters report suggested that Musk had directed his team to abandon plans for an affordable option and instead focus on developing autonomous robotaxis. This report was vehemently denied by Musk, leading to a standoff with the news agency.
