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Tesla Soars 12.1% on New Affordable EV Plan, Amidst EPS Drop

Tesla's stock jumps 12.1% after announcing accelerated new model launches, defying a 50% drop in Q1 EPS to 45 cents.

By Bill Bullington

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4/25, 01:27 EDT
Ford Motor Company
General Motors Company
Tesla, Inc.
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Key Takeaway

  • Tesla's stock soared 12.1% to $162.13 after announcing accelerated plans for new, lower-priced models despite a nearly 50% drop in Q1 EPS.
  • The strategic shift towards more affordable EVs addresses a gap in the market, especially outside China where demand for hybrids outpaces battery EVs.
  • Traditional automakers like Ford and GM show resilience with ICE vehicles funding dividends and buybacks amidst a slow transition to EVs.

Strategic Shift Sparks Rally

Tesla's recent quarterly results have ignited a significant rally in its stock, marking a departure from the anticipated repudiation of electric vehicles (EVs) by investors. Despite a nearly 50% year-over-year drop in first-quarter earnings per share (EPS) to 45 cents, Tesla's stock surged by 12.1% to close at $162.13. This rise came as a relief to investors who had braced for lower projections, with some analysts estimating EPS as low as 20 cents. The positive market response was further fueled by Tesla's announcement to accelerate the launch of new models, including a much-anticipated, lower-priced vehicle, often referred to as the Model 2, ahead of the previously communicated start of production in the second half of 2025.

Wedbush analyst Dan Ives remarked, "The quarter was a disaster, but that was well known. The big [takeaway] is that Tesla is not focused solely on autonomy/robotaxis and [is] accelerating the lower-cost Model 2 vehicle…finally, a smart strategic plan Street wants to see." Bernstein analyst Toni Sacconaghi also noted the strategic shift, questioning, "Can Tesla really deliver significant new models in less than one year?"

Market Dynamics and EV Penetration

The shift in Tesla's strategy comes at a time when the EV market is experiencing a divergence in consumer demand and manufacturer strategy, particularly outside of China. In the U.S. and Europe, sales of traditional and plug-in hybrid models have surged to almost 1.7 million units, a 24% increase year over year, while battery electric vehicle sales have seen a modest 5% increase to about 710,000 units. This trend reflects a broader market shift towards hybrids amid a scarcity of affordable EV options.

In contrast, China's EV market is booming, with battery-electric vehicle penetration in new-car sales nearing 25%. The competitive landscape in China is intense, with a wide range of models at various price points vying for market share. Citi analyst Jeff Chung highlights that most of the EV growth in China for 2024 and 2025 is expected to come from vehicles priced under $30,000, a segment where Tesla has yet to compete.

Traditional Automakers' Response

The cooling demand for higher-priced EVs and the pivot towards more affordable models have not impacted traditional automakers transitioning to EVs as severely. Through recent trading, shares of Ford Motor and General Motors have seen average year-to-date gains, underscoring the resilience of their internal combustion engine (ICE) vehicles. Morgan Stanley analyst Adam Jonas pointed out, "While EVs are the future, it’s the [ICE] product that generates the profits and funds the dividends and buybacks," suggesting that a slowdown in EV sales allows traditional automakers to delay their EV plans and conserve development costs.

However, both GM and Ford face their challenges, with Ford expected to lose $5.5 billion in its EV business in 2024 after a $4.7 billion loss in 2023. The losses, which include high R&D spending and capital charges, highlight the difficulties in achieving profitability in the EV sector without the necessary scale.

Street Views

  • Dan Ives, Wedbush (Bullish on Tesla's strategy):

    "The quarter was a disaster, but that was well known. The big [takeaway] is that Tesla is not focused solely on autonomy/robotaxis and [is] accelerating the lower-cost Model 2 vehicle…finally, a smart strategic plan Street wants to see."

  • Toni Sacconaghi, Bernstein (Neutral on Tesla):

    "Can Tesla really deliver significant new models in less than one year?"

  • Jeff Chung, Citi (Neutral on the EV market in China):

    "Most of the EV growth in China forecast by Citi analyst Jeff Chung for 2024 and 2025 comes from vehicles priced under $30,000, where Tesla doesn’t have an offering."

  • Adam Jonas, Morgan Stanley (Neutral to Bearish on EV transition pace for traditional automakers):

    "While EVs are the future, it’s the [internal combustion engine] product that generates the profits and funds the dividends and buybacks," adding a slowdown in EV sales offers an opportunity for traditional auto makers.

  • Mike Ward, Freedom Capital Markets (Cautiously Optimistic about Ford and GM's potential strategy shift towards trucks and commercial fleets):> "In 'the commercial market,' compelling use case and social pressures will move [EV penetration] towards that 35% level over the next five to ten years...I’d rather see both companies invest in battery electric vehicles rather than the acquisition spree of the 1990s."