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Amid tumult and stiff challenges, Tesla shares soared on news of new, more affordable models, though specifics were hard to come by.
Optimism And Turmoil at Tesla
Tesla shares jumped over 10 percent on Wednesday following the company’s announcement of a plan to release new, more affordable models on an accelerated timeline, sooner than the previously projected second half of 2025. The announcement comes as Tesla contends with a host of challenges ranging from diminishing EV sales and new competition from China to a recall of its new Cybertruck and disappointing first quarter financials. Betting against Tesla has proven to be a losing proposition thus far, but Elon Musk has his work cut out for himself, as we’ll see below.
Financial Headwinds for Tesla
A day’s stock bump does not a trend make. Tesla’s Q1 financials were disappointing for investors and gesture toward a more challenging EV market going forward. Tesla’s revenue numbers were down for Q1 by nine percent, from $22 billion a year ago to $21.3 billion this year. Profits took an even more substantial hit as they were down a full 55 percent year-over-year from $2.51 billion in 2023 to $1.13 billion.
The automotive market has been cooling on EVs over the past year as we transition from a boom of early adopters to a more EV–skeptical general public. While numbers are still trending positive, the rate of growth has stagnated, with demand leveling off at a modest 2.7 percent positive growth in Q1. New international competition, especially from Chinese EV makers like BYD, have bitten into Tesla’s market share, while their current lineup begins to show its age.
Tesla’s response in the past year has been to slash prices on their most popular Model 3 and Model Y vehicles to improve competitiveness. Despite a fire sale Model Y price of $42,990, Tesla was still sitting on a glut of unsold Model Ys totaling nearly 47,000 units. All this has investors bearish on Tesla with the company’s stock seeing a 43 percent decline in 2024.
Cybertruck Woes
Tesla’s troubled financial situation isn’t Musk’s only headache. The Tesla Cybertuck, at once outlandish and impressive, has predictably run into trouble right out of the gate. The company issued a stop sell and full recall on the Cybertruck this month related to an issue that could cause the accelerator to get stuck at full throttle. This recall applied to all of the 4,000-some Cybertrucks Tesla has so far delivered to customers.
Planned Layoffs in Texas and California
Another self-inflicted bit of bad press was Tesla’s announcement on April 15th that the company plans to lay off some 10 percent of its total workforce, roughly 14,000 employees. The first tranche was confirmed this Tuesday when Tesla said they were cutting over 6,000 jobs in Texas and California, 2,688 and 3,332 jobs, respectively. Tesla headcount has grown substantially in the last few years, from approximately 100,000 in 2021 to around 140,000 today.
Musk Limits Specifics on “New Vehicles”
This week’s investors’ call supplied more than its share of grist for the rumor mill when Musk said Tesla plans to release new, more affordable models on an accelerated timeline. A long-sought sub-$25,000 EV is something of an EV market holy grail and has long been the cornerstone of the company’s appeal to long-term investors. The rub has been and remains to be actually building a scalable platform for the as-yet-theoretical Model 2.
At the beginning of April Reuters reported that Tesla’s plans for a mass-market Model 2 were being iced in favor of a doubling down on Tesla’s autonomous vehicles efforts and specifically an upcoming Tesla robotaxi to debut, per Musk, on August 8th of this year. Musk, for his part, denied the cancellation of the Model 2, saying “Reuters is lying, again” but also failing to provide any direct refutation of their reporting. The back-and-forth naturally rattled investors who’ve long banked on Tesla turning the corner toward a mass-market EV.
All this set up this week’s investors’ call wherein Musk explained the company’s plan for new vehicles. We’ll quote the accompanying investors’ packet in full:
We have updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025.
These new vehicles, including more affordable models, will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.
The aforementioned next-gen platform plays a critical role in explaining what’s afoot. Tesla’s hopes for a next-gen platform that solves for a sub-$30,000 price tag have yet to prove out. The engineering on this bit is understandably quite challenging and subsequent re-tooling would be yet another hurdle to full-scale production. Rather than wait, Musk has chosen an alternative route, incorporating new platform elements into their existing platform, saving both time and money.
That the announcement comes on atop this week’s problematic earnings report and on the heels of the Reuters kerfuffle are probably not coincidental. And yet, it’s clear as mud what Musk and Tesla mean by “more affordable models.” Will this be the fabled Model 2? Will it meet the target of a $25,000 price tag?
The Promise and Peril of Autonomy
What is clear is Musk’s sights are set on more than just a mass-market Tesla. In the same investors’ call, Musk said that those investing in Tesla should be doing so because they believe the company can “solve autonomy” and that if their faith therein is wavering, to get out of the stock. An NPR story quotes Musk as saying, “The way to think of Tesla is almost entirely solving autonomy and being able to turn that autonomy for a giant fleet.” Musk explained his vision was for autonomous Teslas to operate as driverless rideshare vehicles when owners weren’t using them, basically robotaxis effortlessly covering the cost of the vehicle for their owners.
But as the saying goes, there’s many a slip between a cup and a lip and the challenges of autonomous vehicles are far from solved (some experts posit them as perhaps unsolvable). The recent setbacks for Waymo and GM’s Cruise division demonstrate that autonomous vehicles have a long way to go, even when operating in limited, well-mapped environs like Phoenix and San Francisco.
Time will tell whether Musk and Tesla can crack the code on autonomy or whittle the price of an American-made EV down to $25,000, but one this is for sure, it’s going to be interesting to see them try.
