Tesla Inc. is planning to release a $30,000 electric vehicle, but according to Gary Black, managing partner of The Future Fund LLC, this new EV may fall flat if it doesn’t introduce a new compact form factor.
The Risk of Cannibalization
Black warns that simply releasing a scaled-down version of existing Models 3 or Y could lead to significant cannibalization of Tesla’s current lineup. This could prompt Wall Street analysts to lower their 2025 delivery growth estimates, currently projected at 16% year-over-year.
The Importance of a New Form Factor
“A Tesla’s new $30-$35K car may be a nothing burger if Tesla doesn’t introduce a new form factor to extend TSLA’s franchise into the compact category,” Black wrote. He highlights the significance of targeting a new market segment rather than just offering cheaper variants of existing models. The compact category represents 15% of global volume, making it a crucial market for Tesla to tap into.
Upcoming Earnings Report
The caution comes ahead of Tesla’s fourth-quarter earnings report, where investors eagerly await details about the company’s new affordable EV expected to be unveiled in the first half of 2025. The earnings call may also address crucial topics including the Model Y refresh ramp-up, progress in Full Self-Driving capability, and potential impacts of changes to federal EV tax credits.
Analyst Expectations
Morgan Stanley analysts expect 2025 delivery growth between 10% and 20%, below Tesla CEO Elon Musk’s guidance of 20-30%. Goldman Sachs analyst Mark Delaney maintains a neutral rating with a $345 price target, emphasizing the importance of production speed for the refreshed Model Y. Bank of America recently downgraded Tesla to Neutral despite raising its price target to $490, suggesting the stock’s recent rally has captured much of its long-term potential.
Price Action
Tesla’s stock closed at $398.10 on Tuesday, gaining 0.24% for the day. In after-hours trading, the stock dipped 0.36%. Over the past year, Tesla’s stock has surged 108.51%.
Conclusion
Tesla’s $30K EV has the potential to be a game-changer, but only if the company introduces a new compact form factor that extends its franchise into the compact category. Without innovative design, the new EV may fall flat, and investors may be disappointed. The upcoming earnings report will be closely watched by investors, and the company’s ability to deliver on its promises will be crucial to its future success.