- Tesla reported disappointing first quarter results.
- But investors celebrated news of cheaper vehicles on the horizon.
- This assumes that many people want to buy a Tesla but can’t afford one.
Tesla had some bad news and some good news when it reported its first quarter results.
The bad: It reported revenue and earnings below Wall Street expectations and negative free cash flow.
The good news: cheaper Teslas are on the way!
Tesla’s plan to accelerate the launch of new models – including more affordable cars – and talk of a robot taxi service were enough to send the stock price soaring despite the lack of profits.
Investor reaction suggests Wall Street has bought into the idea that cheaper vehicles would help solve some of Tesla’s demand problems.
Growth in electric vehicle sales has slowed in part because most options are more expensive than the average car purchase in the United States, or so the theory goes.
“If you have a great product at a good price, sales will be great,” CEO Elon Musk said Tuesday during an earnings conference call.
This could normally be true. But Tesla is no ordinary product. Even at a lower price, say $25,000, this is a very large purchase – probably one of the most expensive purchases a person can make.
So let’s look at why a lower ticket price might not be a panacea for Tesla.
Switching from gas to electricity is a big problem
So far, many EV buyers have been early adopters, and many other car buyers have yet to be convinced. This is part of the reason why hybrids have been so successful, as an intermediate step between gasoline cars and fully electric vehicles.
It’s possible that there are many more buyers who would like to buy a Tesla but simply can’t afford it. How big is this group of buyers? It’s not clear.
“These new vehicles still raise a lot of new unanswered questions, which TSLA hasn’t really answered, leading us to believe that a lot is still evolving,” UBS said in a note following the release of the results.
“What is it really about and which buyer are they targeting besides ‘lower cost’? Lower cost might not be enough due to the lower prices of used Teslas,” the note adds.
For context, a quick search on Carvana reveals a whole bunch of used Teslas priced between $25,000 and $30,000. Many of those listed have seen their prices drop recently.
Is this a good deal? It’s hard to say. Resale data for used electric vehicles is scarce, and battery longevity is scattered as technology improves.
Infrastructure challenges remain
Electric vehicles also require an entirely different infrastructure than gasoline vehicles, and concern over battery range and charging stations continues to be a real problem for electric vehicle owners.
The number of charging stations in the United States has increased gradually over the years, but operators have faced maintenance and availability issues – and some lack amenities such as snacks and restrooms that the found at gas stations. It’s also worth noting that a full charge of a Tesla, which has nearly 7,000 charging stations in the United States, can take up to 30 minutes.
Maybe infrastructure isn’t a major concern for the archetypal early Tesla buyer: someone who might be a tech worker in California with plug-ins in their garage or driveway — and also in his office. There are of course many other Tesla buyers, but as Tesla introduces less expensive models seeking different buyers, the needs will evolve.
Today’s buyers of a Honda Civic or Toyota Camry, two of the most common cars on American roads, may not be willing to invest the time and money to perfect their setup home charging, which may require an electrician to install high-voltage outlets. a convenient place. And that, of course, only if they have their own parking space. Installation may be trickier for people living in apartment complexes, urban townhouses, or a myriad of other housing situations.
Musk and Tesla are politicized
As Tesla seeks to attract new potential buyers with a cheaper car, it will face souring consumer confidence in the electric vehicle maker.
The number of U.S. consumers who say they are considering buying a Tesla fell to 31% in February – down from 70% in November 2021 – according to a study recently published by Reuters. Some Tesla owners previously told BI that they were rethinking their allegiance to the brand due to concerns about Musk.
Tesla also faces headwinds in China, where it is losing ground to fierce local competitors like BYD.
BYD sells an EV model for less than $10,000 in China, while Tesla’s Model 3, by comparison, costs around $32,000.
Tesla’s share of China’s auto market fell to 6.7% in the quarter ended December, from a 10.5% share in the first quarter of last year, Bloomberg reported based on data from the China Passenger Car Association.
Time will tell for Tesla
It’s still unclear exactly when a new, more affordable model might arrive, although Musk has raised the possibility of early 2025.
Elon Musk has a habit of overpromising when it comes to deadlines. The Cybertruck, for example, was scheduled to enter production in 2021. Deliveries to customers did not begin until the end of 2023.
If and when the cheaper car arrives, it could take off. Renault has had some recent success with cheaper electric vehicles, for example. This could make Tesla more attractive in markets like India. Perhaps the pool of buyers for a cheap Tesla will be huge. Betting against Elon Musk has proven to be a losing proposition over time.
But it’s worth thinking about what might happen if success wasn’t instantaneous.
businessinsider
