Tesla, Inc. (NASDAQ:TSLA) shares continue to see-saw, and on Wednesday they underperformed the broader market. As the lackluster phase is having an extended run, a fund manager delved into how the company can turn things around.
What Happened: The biggest threat Tesla currently faces is the likelihood of more price cuts, said Future Fund's Gary Black in a post on X, formerly Twitter. He termed it as an internal risk.
Black estimates that Tesla's earnings power may have been reduced by 48% by the price cuts implemented over the past 18 months. From $4.82 18 months ago, the 2024 earnings per share estimate now stands at $2.53, he said.
The fund manager also took a dig at the management for not trying out other strategies. "It's as if TSLA's marketing team has no other levers," he said. The Tesla bull was alluding to communications to convince ICE owners as to why they should choose an electric vehicle and also persuading them to buy Teslas instead of Audis, BMWs, Mercedes, Volvos, and other luxury cars.
Black also underlined the futility of the price cuts as they haven't generated any incremental volume. Tesla's first-quarter deliveries fell by 8.5% year-over-year, and second quarter's are on track to decline a steeper 10%, he said.
"I'm not suggesting I know better than mgmt. I am suggesting TSLA acquire some new skills and try a different dance move," he said.
The biggest threat facing $TSLA stock is an internal risk: more price cuts. TSLA's price cuts over the past 18 months have reduced TSLA FY'24 earnings power by 48% – from $4.82 to $2.53. It's as if TSLA's marketing team has no other levers (e.g. comms to convince ICE owners why... pic.twitter.com/RqwjvR6fMu
— Gary Black (@garyblack00) May 23, 2024
Why It's Important: Tesla's shares have fallen sharply from its all-time intraday peak of $414.50 hit on Nov. 4, 2021. The management's strategy of undercutting competition has only backfired. The price cuts that began in China in late-2022, were extended to other geographies since the start of 2023. As a result, core auto gross margin and profitability took a big hit.
Tesla mostly stalled downward price tinkering this year but margins are yet to meaningfully inflect higher, while the demand outlook hasn't improved.
Black has been striving to impress upon the Tesla management the need to advertise and launch a sub-$30,000 EV – both of which, according to him, could give volume a big boost. The management commentary on the first-quarter earnings call suggests the company may have put its low-end EV project on the backburner and was instead looking to prioritize full self-driving technology and robotaxis.
Tesla ended Wednesday's session down 3.48% at $180.11, according to Benzinga Pro data.
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