Tesla investors are eagerly awaiting more information about the company’s more affordable vehicle model as they prepare for the quarterly earnings report this Wednesday. Many believe this lower-cost vehicle could be key for Tesla to achieve its ambitious delivery growth target of up to 30% this year.
Since the election victory of President Donald Trump, which was supported by significant financial contributions from Tesla CEO Elon Musk, Tesla’s market value has skyrocketed over 60%, reaching $1.3 trillion. The surge in valuation is largely due to expectations that the new administration will relax regulations on autonomous driving technologies, which are a critical part of Tesla’s future strategy.
Despite facing stiff competition in China from BYD and other electric vehicle manufacturers, Tesla experienced its first-ever annual drop in deliveries in 2024. However, analysts are optimistic that lower borrowing costs this year could help Tesla bounce back in sales figures.
Tesla has not introduced major updates to its older vehicle models in the U.S. market. Instead, it is banking on the success of its new Cybertruck, an electric pickup with a distinctive, controversial design, to drive sales. Recently, Tesla launched an updated version of its popular Model Y crossover SUV in the United States, shortly after its introduction in China, aiming to capture more market share.
Barclays analyst Dan Levy noted, “As the growth opportunities from Tesla’s existing lineup seem somewhat constrained, the new low-cost model is vital to Tesla’s growth strategy, even if it may not reach the previously projected 20-30% year-over-year growth target.”
In April of last year, Tesla announced plans to introduce more affordable vehicles by leveraging its existing platforms and production lines by the first half of 2025. This marked a shift from earlier plans to develop a completely new model priced at $25,000.
The eligibility of Tesla’s new model for a $7,500 U.S. rebate remains uncertain, which could potentially increase the overall cost for consumers. Additionally, there are concerns about how this new model will differ from existing offerings and whether it might negatively affect sales of the current Model Y, according to David Wagner, a portfolio manager at Tesla investor Aptus Capital Advisors.
Following its substantial rise in stock value, Tesla is now trading at 125 times expected earnings, showcasing the market’s view of Tesla as a high-growth tech firm with promising ventures in AI and robotics. This valuation starkly contrasts with General Motors, which is trading at just five times its earnings.
Despite the valuation, Tesla’s price-to-earnings ratio surpasses even those of major tech giants like Microsoft, Alphabet, and Nvidia.
This year, analysts forecast Tesla will sell approximately 2.1 million vehicles, marking a 16% increase from last year’s figures, which saw a slight decline due to an aging vehicle lineup and increased competition from established automakers in China and Europe.
FSD contributes to profitability
Tesla’s advanced driver assistance software, Full Self-Driving (FSD), has significantly boosted the company’s profit margins, performing better than expected in the September quarter.
Seth Goldstein, an equity strategist at Morningstar, predicts that continued lower production costs and higher adoption of FSD will keep enhancing Tesla’s profit margins. However, the impact might be less pronounced than in the third quarter when Tesla recognized some revenue following the launch of its “Actually Smart Summon” feature.
Analysts, according to Visible Alpha, expect Tesla to report an automotive gross margin, excluding regulatory credits, of 16.2%, a decrease from 17.05% in the previous quarter.
As Tesla grapples with competition from low-cost competitors in China, the company has shifted focus to AI-driven products like FSD and has also introduced the Cybercab robotaxi, which lacks traditional controls like a steering wheel and pedals, with production slated to start next year.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.