How Elon Musk Can Move Tesla's Stock at its Investor Event

Tesla TSLA +1.77% requires a more affordable vehicle. The earlier the better, too.

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On March 1, the electric vehicle pioneer will host an investor event. Investors will have the chance to hear from CEO Elon Musk on the direction and future of the business. As EV competition heats up this year, one problem stands out more than others.

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"As Tesla prepares for its analyst day, the most crucial issue is the position of its next-generation, more affordable vehicle platform," Bernstein analyst Toni Sacconaghi wrote in a note on Wednesday. According to him, Tesla needs the more affordable EV to live up to investors' high growth expectations. According to our study, EV models have typically had trouble growing their volume after their third or fourth year of introduction.

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All of Tesla's automobiles, with the exception of the Model Y, are older than four years and are considered higher-end vehicles. Now, the starting prices for a Model S are around $95,000, while a Model X is around $110,000. Starting prices for the Model 3 and Model Y are respectively around $43,000 and $55,000.

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Models S and X production by Tesla began in 2012 and 2014, respectively. Because batteries back then were quite expensive, Tesla had to start off with pricey, luxury vehicles. 2018 saw a combined peak in S and X sales of 116,076 units. In 2022, 66,705 of the two models were sold.

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Tesla's first mass-market vehicles, the Models 3 and Y, began shipping in 2017 and 2020, respectively. 1,247,146 automobiles were sold overall in 2022, a 37% increase from 2021.

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Throughout time, Tesla has shipped more than three million Model 3 and Y cars. Compared to its Model S and X automobiles, that is almost six or seven times higher.

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Wall Street anticipates Tesla to ship roughly 1.8 million Models 3 and Y in 2023 and 2.4 million of those two models in 2024, representing a growth rate for that platform of almost 40% on average annually. Sacconaghi, however, merely concerns that the vehicles may be too old to provide those statistics.

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The analyst continued in his analysis, "We struggle to see how Tesla can produce a new volume product prior to 2025." He has a $150 price target for the stock and classifies the shares as Sell.

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A more affordable EV has been brought up multiple times by Tesla. The "next-generation vehicle platform" is a priority, according to CFO Zachary Kirkhorn, who recently stated this during the company's fourth-quarter conference call. Yet, there are few details available on the price and release date of the next platform. A request for comment regarding the creation of a more affordable EV was not immediately answered by Tesla.

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A more affordable model would spur growth and give the leader in EVs access to a larger portion of the global auto market. Except for pickup trucks, about 50% of cars sold in the US are under $36,000. Tesla no longer offers vehicles with starting prices below $42,000.

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(But, a base Model 3 starts at roughly $36,000 thanks to the new $7,500 purchase tax credit that was passed by Congress as part of the Inflation Reduction Act.)

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Of course, Tesla might potentially update the Model 3 and Model Y with minor adjustments and new features. Investors should keep an eye out for such initiatives on March 1. In 2023, Tesla will also begin shipping the Cybertruck, giving the business access to the truck sector.

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Investors don't now seem to be concerned about the next automobile. Although shares of Tesla have increased by around 60% so far this year, they have decreased by about 28% over the previous 12 months. Over the past year, the S&P 500SPX -0.16% and Nasdaq CompositeCOMP +0.13% have declined by around 7% and 14%, respectively.

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Next week, the release of a new, more affordable vehicle and a production schedule may help the stock of Tesla rise. On the other side, the stock may lose some of its year-to-date gains if the company doesn't announce a new low-price EV

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Although 65% of analysts who follow Tesla stock rate the stock as Buy, Sacconaghi assesses Tesla shares as Sell. The S&P 500's equities have an average Buy-rating ratio of roughly 58%. Around $198 per share is the average analyst target price for Tesla.