Automotive sector
Tesla shares rose sharply after disappointing quarterly results. The promise that a new cheap model will come onto the market next year convinces investors that improvement is on the way.
Investors prefer to look forward rather than backward. This stock market wisdom was once again underlined by the price reaction of the Tesla share. It gained 11.8 percent after poor first-quarter results. Sales fell 9 percent to $21.3 billion. Net profit halved to 1.13 billion and during the first quarter Tesla burned more cash than it took in due to the many investments. It had been since 2020 that the car company had been in that situation. Those poor figures were not entirely a surprise, as Tesla had previously published poor sales figures. Tesla sold 8 percent fewer cars in the first quarter, because of the slowdown in sales of electric cars and competition from China. That bad news was already incorporated into the stock price.
Investors were mainly interested in the prospects. Many doubts have arisen about Tesla’s growth strategy in recent weeks. Elon Musk had said that Tesla should focus on the Robotaxi, a self-driving car, and much less on the cheap ‘Model 2’. However, the market was counting on the $25,000 model for a new growth spurt.
Earlier than expected
CEO Elon Musk has now assured that that car will be available and even sooner than expected: a cheap Tesla should roll off the production line by the middle of next year. The car manufacturer is changing its plans. Initially, Tesla wanted to build the car on new production lines that were designed in a revolutionary different way. Tesla has decided not to do this for the time being. It will build the Model 2 on the existing lines, allowing the cars to enter the market earlier and achieving better utilization of the existing assembly lines in the four factories. They can theoretically build 3 million cars per year. Tesla is confident that it can produce 50 percent more cars in this way, without having to invest in new expensive factories.
In this way, Tesla is more similar to classic car builders, who also build multiple models on the same line. The disadvantage of such a flexible line is that it requires more manpower. In Musk’s original plans, that cheap car had to be built on a new, extremely automated line.
Musk did reiterate his belief that Tesla will be the first to crack the code for self-driving cars. Artificial intelligence would convert the many data from the driving Teslas into an operating system. Anyone who does not believe that Tesla will be the first should not invest in the stock, the CEO said during a conference call.
