Elon Musk updated investors about
‘s product plan in January during the company’s fourth-quarter earnings conference call. Tesla is selling all the cars it can make, so Musk said maximizing production of the existing lineup was the priority in 2022. Developing new models is secondary, and one bearish analyst said that’s a big risk.
He has a point.
Bernstein analyst Toni Sacconaghi is the worried bear. Since Tesla (ticker: TSLA) isn’t developing a new, lower-priced model now “it appears highly unlikely that Tesla will be offering a [$25,000] vehicle prior to 2025,” wrote Sacconaghi in a recent research report. The decision “feels at odds with Tesla’s goal of driving EV adoption as quickly as possible.”
It also might be at odds with Tesla’s stated goal of growing volumes at 50% a year, on average, for the foreseeable future. Tesla unit sales grew 87% in 2021.
Lower prices would expand Tesla’s addressable market, helping it sell more cars. Compact and sub-compact cars account for roughly 20% of the U.S. auto market. SUVs and crossover vehicles are the biggest sellers. Tesla has that market segment covered with its Model Y.
The average transaction price for a new car in the U.S. came in around $45,000 in the fourth quarter of 2021, according to RBC analyst Joseph Spak. Tesla’s average transaction price in the fourth quarter was about $52,000. That calculation is simply automotive sales divided by deliveries.
Higher prices can limit sales. So can a limited number of models. “There are only two vehicle models selling above 1 [million] units per year in the world,” noted Sacconaghi , adding they cost between $20,000 to $35,000. He doesn’t name the best sellers, but the
(TM) Corolla and Rav-4 both sell more than 1 million units a year.
Musk doesn’t believe price will hinder sales in the near term. “We think the Model Y will be the best-selling vehicle of any kind globally,” said Musk back in October at the company’s annual shareholder meeting. “I think we’ve got a good chance of it being the best-selling vehicle by revenue [in 2022] and then I think quite likely to be the best-selling vehicle in just of any kind numerically in .”
Time will tell if Musk is right and if Tesla can move millions of vehicles with a handful of models. For now, the model lineup will be something bulls and bears can debate in the upcoming months.
Sacconaghi rates Tesla stock the equivalent of Sell and has one of the lowest price targets on Wall Street at $300 a share. The average analyst price target for Tesla stock is much higher at about $965.
Tesla stock was up about 0.4% in premarket trading.
Dow Jones Industrial Average
futures were both down about 0.1%.
Tesla stock rose 5.3% Tuesday. Shares have risen for the past couple of days, erasing Friday’s big 4.9% decline. The debate over product lineups isn’t moving the stock recently. Shares, like the rest of the market, are trading with news about interest rates and the Russian-Ukrainian conflict.
Write to Al Root at email@example.com