(Reuters) – Tesla investors will look for more details on the automaker’s lower-priced model when it reports quarterly results on Wednesday as some expect the cheaper car to help the company hit its goal to increase deliveries by up to 30% this year.
The world’s most valuable automaker has seen its stock market valuation soar more than 60% to $1.3 trillion since President Donald Trump won November’s election with the financial backing of Tesla CEO Elon Musk. Investors are betting the new administration will ease regulation on self-driving vehicle systems that Tesla is developing.
Faced with intense competition in China from BYD and other electric vehicle makers, Tesla in 2024 recorded its first-ever decline in annual deliveries. Analysts now expect lower borrowing costs this year to fuel a rebound in sales volume.
Tesla, however, is yet to deliver major upgrades to its aging line up of cars in the U.S., and it is relying on its relatively new Cybertruck electric pickup truck, with its polarizing design, to boost sales. The company launched an updated version of its best-seller Model Y crossover SUV on Thursday, weeks after its launch in China to attract new customers.
“As the opportunity for growth from Tesla’s existing lineup appears quite limited, Tesla’s new low-cost model remains crucial to Tesla’s plan for growth, even if not to the extent of the prior 20-30% y/y target,” Barclays analyst Dan Levy said in a research note.
Tesla said in April last year that it would launch cheaper cars based on its current platforms and their existing production lines in the first half of 2025, as part of a pivot from ambitious plans to produce an all-new model that had been expected to cost $25,000.
Some investors are concerned that the new model may not qualify for federal subsidies under the Inflation Reduction Act. However, Reuters late last year reported that these Biden-era subsidies are likely to be removed under the Trump administration, a move endorsed by CEO Musk.
“It is unclear whether the new model will qualify for a $7,500 U.S. rebate, which could make the net cost to consumers higher, and we don’t know how different the new offering might be, and whether it might cannibalize existing Model Y sales,” said David Wagner, portfolio manager at Tesla investor Aptus Capital Advisors.
Following its sharp stock gains, Tesla is trading at 125 times expected earnings, reflecting shareholders’ perception of it as a high-growth tech company with a future in AI and robots, according to LSEG data. By comparison, General Motors is valued at five times its earnings.
Tesla’s PE dwarfs even those of Microsoft, Alphabet and Nvidia.
Analysts expect Tesla to sell 2.1 million cars this year, up about 16%, according to 20 analysts polled by LSEG, after its deliveries last year fell marginally, due to an aging model lineup and growing competition in China and Europe from legacy automakers.
FSD CONTRIBUTES TO PROFITABILITY
Tesla’s highly profitable advanced driver assistance software, Full Self-Driving (FSD), also contributed to a higher-than-expected profit margin in the September quarter, analysts had said.
That and lower production costs are expected to continue lifting Tesla’s margins, according to Morningstar equity strategist Seth Goldstein.
FSD could benefit from higher adoption, but the impact may be less than in the third quarter as Tesla recognized some revenue after launching the “Actually Smart Summon” feature, Goldstein added.
Analysts expect Tesla to report an automotive gross margin, excluding regulatory credits, of 16.2%, according to 23 analysts polled by Visible Alpha. That is down from 17.05% in the third quarter.
Struggling with competition in China from low-cost rivals, Tesla has focused on artificial intelligence-based products such as FSD. It has also showcased the Cybercab robotaxi, which has no steering wheel and pedals, in October, claiming production will begin next year. (This story has been refiled to fix the formatting)
(Reporting by Akash Sriram in Bengaluru; Editing by Anil D’Silva)
