Tesla shares rose nearly 14% on Wednesday after the electric car maker allayed some concerns about slowing growth by forecasting sales would rise this year and planning to launch more affordable models in early 2025.
After a tumultuous week at Tesla that saw major layoffs, executive departures, price cuts and the postponement of a high-profile meeting with India’s prime minister, investors had braced for the worst.
The revised plans also helped Wall Street weather the company’s weak first-quarter results, including a lower-than-expected profit and the first decline in quarterly sales in nearly four years.
“The first impression for us is that CEO Elon Musk is reassuring the market by accelerating new product launches,” Jefferies analysts led by Philippe Houchois said in a note.
Based on the premarket surge in stock price, Tesla was on track to add nearly $50 billion to its $460 billion market value. The stock has fallen 42% this year as high borrowing costs have dampened demand for electric vehicles and price wars have intensified in the key market of China.
Tesla’s growth strategy could bolster support for a shareholder vote in May on Musk’s $56 billion compensation package, which was voided by a Delaware court in January.
Some Tesla investors – like Ross Gerber, president and CEO of Gerber Kawasaki Wealth & Investment Management – had said in recent days that they plan to oppose the package, citing a decline in Tesla’s stock price and a compromised board.
“Included Model Y/Model 3”
Several analysts viewed Tesla’s comments that its cheaper models would be built on current platforms and production lines as further confirmation that the company was moving away from more ambitious plans for an all-new model expected to cost $25,000.
“We interpret ‘more affordable’ as potentially disappointing Model Y/Model 3 releases with improvements in software and AI/hardware capability, but at lower prices,” said Morgan Stanley analyst Adam Jonas.
Musk declined to provide details about the cheaper models, instead devoting much of the earnings release to Tesla’s efforts to diversify its business into AI, humanoid robots and operating a fleet of autonomous vehicles – all based on software and hardware products that Company not yet fully developed.
Investors and analysts have long rated Tesla as highly valued, for example for its driver assistance technology.
Tesla stock trades at 57.38 times forecast 12-month earnings, a price-to-earnings ratio well above Ford’s 7.06 times and General Motors’ 4.80 times .
According to data and analytics firm Ortex, Tesla shares rose to around $160 apiece in pre-market trading, a price that has seen short sellers lose $1.62 billion on paper since Tuesday’s close.
However, short sellers have still made a profit of almost $8 billion this year.
“Although the details (on the new models) are sparse, this was a smart move by Musk as it justifies the negative cash flow and higher capital expenditures,” said Kathleen Brooks, research director at XTB.
“Unlike many companies that are reducing capital expenditures in the current environment, Tesla is going against the grain … putting it in a strong position as the electric vehicle market becomes increasingly competitive and price sensitivity increases,” Brooks added.