Once Again, Tesla Proves It Does Not Back Down From Bad News

Tesla's next-generation manufacturing platform has been talked about a lot in the past, but few have talked about what it will build upon it.

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During Tesla's investor day, the company served up an example of an old Wall Street adage that goes like this: Buy the rumor and sell the news.

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Late Wednesday's event didn't live up to the frenzy of anticipation. As other companies typically do on investor days, the company did not commit to any new numbers or dates at the end of the call. Tesla is not one for medium-term targets or doing the usual corporate things, which isn't surprising since the company doesn't believe in them. It wasn't filling the void with much else, which was disappointing.

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There was no product, and that was the most important thing. Despite the fact that this wasn't advertised as a product event, the anticipation of a "Model 2" — the successor to Tesla's Model 3 electric vehicle that is expected to cost $25,000 — was a major focus in the lead-up to the event. During the event, there was much discussion about how the company plans to improve efficiency in manufacturing with its next-generation production platform, but no hint as to what it might actually build: no prototype, no illustrative image or any timeline provided.

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The announcement was not accompanied by any other meaningful information. It was just a high-level reiteration of its longstanding mission to accelerate the transition to sustainable energy across the globe. Despite the fact that the company confirmed reports that it would build its next factory in Mexico, the real news was that there were no real news to report. The stock fell about 7% at the opening on Thursday morning.

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Tesla's management team was introduced to investors at the event. Sixteen executives joined Mr. Musk on stage for the question-and-answer session. Considering that he has a lot of work to do with Twitter, the CEO wanted to emphasize bench strength. Possibly, this is a double-edged sword: good for the company, but perhaps not, given. Due to his cult status among many individual investors, Musk's taste for controversy might not be good for the stock, considering the fact that mainstream automakers don't need so much controversy.

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It has been a record year for new Tesla stock purchases among this cohort, which is likely to be one of the reasons the stock has risen 52% in 2023 after last year's rout. Data provider VandaTrack notes that in the past, Tesla news events have led to elevated buying and share-price jumps followed by selloffs after news events such as the stock split in 2020 and the partnership with Hertz in 2021. The company expects a similar reversal to occur in the near future.

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Other investors should steer clear of Tesla due to the waves of retail buying and selling that have occurred recently. The meme-stock vibe creates a high degree of volatility and a valuation that anticipates years of gains in market share at high margins, which is a heroic assumption in a market flooded with new EV companies entering the market every week.

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Mr. Musk and his team made a convincing case Wednesday that Tesla still has a competitive edge when it comes to the engineering and manufacturing of the new automotive technology. As a result of its clean-sheet approach and rocky financial history, the company has been able to develop a relentless focus on efficiency that is well suited to the task of driving down the cost of EVs. Shares in silicon-carbide specialist Wolfspeed fell 12% at the opening of trading on Thursday as the company's shares reverberated through the semiconductor industry following the announcement that it would reduce the use of expensive silicon-carbide chips by 75% in its next generation of vehicles.

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It seems that Mr. Musk is assuming that demand for Teslas will always automatically track a fast-increasing supply, but it might not necessarily be true. There is an aging product lineup for Tesla, and rivals are building up their own brands and manufacturing capacity at the same time. Car consumers have always been attracted to variety when it comes to their vehicles. There is one market that investors should keep an eye on closely, and that is the Chinese market, where Tesla has a formidable competitor in BYD.

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Model 2 will have a lot to live up to when it finally arrives.

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