Tesla Stock Up 10%, Musk Plans Affordable EVs by 2025

Key Takeaway

• Tesla's stock surged over 10% after announcing new affordable EV models by early 2025, despite a 9% revenue decline in Q1.
• Bank of America upgrades Tesla to buy with a $220 target; UBS remains neutral, citing skepticism about growth potential.
• Strategic shifts include accelerating affordable EV production and unveiling a robotaxi, aiming to broaden market accessibility.

Market Response to Tesla's Announcement

Tesla's stock experienced a significant surge, climbing over 10% on Wednesday morning. This increase came after CEO Elon Musk announced during Tesla's earnings call that the company plans to begin production of new, more affordable electric vehicle (EV) models by early 2025. This timeline is an acceleration from the previously expected start in the second half of 2025. Despite reporting a revenue decline of 9% year-over-year in the first quarter, the steepest annual drop since 2012, and falling short of analysts' expectations for both earnings per share and revenue, the market reacted positively to the news of the upcoming affordable EV models.

Bank of America analysts upgraded Tesla's stock from neutral to buy, maintaining a $220 price target. They cited the company's first-quarter results and leadership commentary as revitalizing the growth narrative and addressing key concerns. Conversely, UBS analysts reiterated their neutral rating on Tesla stock and lowered their price target, expressing skepticism about the near-term viability of Tesla's autonomy play and the growth potential for the current lineup.

Tesla's First-Quarter Performance

Tesla reported adjusted earnings per share of 45 cents on $21.3 billion in revenue for the first quarter, missing the analysts' expectations of 51 cents EPS and $22.15 billion in sales. This decline in revenue from $23.3 billion a year before and from $25.17 billion in the previous quarter marks Tesla's first drop in four years. The company also reported $1.2 billion in operating profit and $1.5 billion in adjusted net income, both numbers falling short of forecasts and down more than 50% from a year ago.

Despite the weaker-than-expected financial performance, Tesla's announcement of accelerating the launch of more affordable vehicles and the unveiling of a Tesla robotaxi on August 8, 2024, has sparked investor interest. The company also confirmed that the next-generation platform would underpin a sub-$30,000 mainstream EV, addressing the demand for more accessible electric vehicles.

Strategic Shifts and Future Prospects

Tesla is undergoing significant strategic shifts, including a massive restructuring with key executive resignations and a workforce reduction of more than 10% of its global workforce. These changes follow a period of heightened competition, slowing sales growth in the EV segment, and ongoing price cuts to spur demand. The company's focus on self-driving technology and the development of a "purpose-built robotaxi" represent a pivot towards autonomy and a potential new revenue stream.

The upcoming affordable EV models, which will utilize aspects of the next-generation platform as well as current platforms, are expected to be produced on the same manufacturing lines as Tesla's current vehicle lineup. This strategy could streamline production and potentially lower costs, making electric vehicles more accessible to a broader market.

Street Views

• Bank of America Analysts (Bullish on Tesla):

  "Tesla’s first-quarter results and leadership’s commentary addressed key concerns and revitalized the growth narrative."

• UBS Analysts (Neutral on Tesla):

  "Increasingly, TSLA is a play on autonomy, and while progress is being made, we are cautious on near-term viability. We see limited growth for current lineup and lack of clarity on what these ‘new vehicles’ could bring."

Management Quotes

• Elon Musk, CEO of Tesla:

  "The electric vehicle company plans to begin production of new affordable EV models by early 2025."