Elon Musk's Optimistic Outlook Boosts Tesla Stock

Tesla Inc. is an American electric vehicle and clean energy company based in Palo Alto, California. Tesla's mission is to accelerate the world's transition to sustainable energy. The company designs, manufactures, and sells electric vehicles, solar panels, and solar roof tiles. Tesla also offers energy storage solutions through its Powerwall and Powerpack products.

After Elon Musk struck an upbeat tone about demand for the company’s vehicles and its ability to navigate a potential economic downturn, shares rallied.

Shares of the company soared more than 8% to $156.72 in early Thursday trading, and are up 27% so far this year. The stock is rebounding after its worst performance ever last year, and is on track for its biggest percent increase since July 2022. It is currently the second-best performer in the S&P 500.

"We've seen stronger orders so far in January than at any other point in our history," Mr. Musk said on a call with investors after the Wednesday market close. "Right now, we're seeing orders that are almost twice the rate of production."

The EV maker's poor stock performance in 2022 was due to rising interest rates, increased competition, and declining brand popularity. However, recent price cuts for certain vehicles, coupled with mixed results in the fourth quarter, have helped to boost investor sentiment.

Tesla reported a profit of $3.7 billion and sales of $24.3 billion for the fourth quarter of 2020. Both figures were higher than the previous quarter, but fell below analysts’ estimates.

The Austin, Texas-based company said it planned to produce or deliver 1.8 million vehicles in 2021, marking 37% growth from 2020. This is below Wall Street's expectations, as the company has been aiming to increase vehicle deliveries by an average of 50% annually.

Analysts are focused on margins as Tesla's price cuts are expected to impact its profitability.

Wells Fargo analysts Colin Langan and Kosta Tasoulis have forecast that Tesla's auto gross profits will fall year-over-year in 2023, due to an expected increase in deliveries of only 720,000 units. They also predict that Tesla's margin will fall to 19.3%, below the company's target of 20%.

Analysts say that despite challenges, the Inflation Reduction Act and increased production at Tesla's Berlin and Texas sites are expected to help improve the company's margins.

According to Wedbush analysts Dan Ives and John Katsingris, Tesla's decision to sacrifice margins for higher volumes in the near term is the right strategic move to protect its customer base and stay ahead of growing EV competition from Detroit, Europe, and China.

Tesla's lead in the EV space is unlikely to change soon, especially given the recent price cuts. According to Tesla CEO Elon Musk, this price change could attract more of the "average consumer" as customers' purchasing power gives way to inflation.

Analysts say that demand will be tested as economic uncertainty remains. They believe that Tesla will be much more resilient in a recession than other companies, due to the cost levers at its disposal.