You can’t say it was an uneventful year for Tesla (TSLA). A lot of has happened, both good and bad, that produced an interesting 2023 for the brand, to say the least —and sets up an intriguing 2024 ahead for the EV stalwart. (And this isn’t even including CEO Elon Musk’s various outside endeavors and his, shall we say, sketchy statements on X.)
While investors may have enjoyed a sizable 100% return on the stock so far this year, future returns are far from certain — and the heavily traded (and shorted) Tesla stock tends to experience outsize moves throughout the year. Just look at the 15% drawdown since the stock hit its 52-week high back in July.
With that said, let’s get to the top three things that affected Tesla, and its stock, this year — and what may be coming for investors in 2024.
Price cuts roil the industry — and Tesla’s margins
Following a round of big price cuts in the important market of China (and the turmoil it caused there for early customers), analysts and potential buyers were waiting for the discounts to expand. And they did.
In addition to cutting prices for the Model 3 and Model Y in several European countries, Tesla cut prices for those cars in a big way in the US — likely in the name of boosting demand and to bring these cars under the price caps for the Inflation Reduction Act’s EV tax credit ($55K for sedans, $80K for SUVs and trucks).
For example, Tesla’s Model Y Long Range started the year at $65,990; currently the price on Tesla’s website is $48,990 — a cut of nearly 26%. The Model 3 RWD sedan went from $46,990 to $38,990, a drop of 17%. Ford in the US and other EV makers cut prices in response to Tesla’s deep price cuts.
Wedbush analyst Dan Ives said the the cuts are the “right medicine at the right time.” But margins were the victim in Tesla’s move to gain more ground and increase volume in the EV battleground.
“Tesla took prices down earlier in the year. They didn’t really get much out of it; I would say it stopped the bleeding,” Gary Black, Future Fund managing partner, told Yahoo Finance. Black, whose Future Fund lists Tesla as its second-biggest position, didn’t think the price cuts were a smart move, and has in the past advocated for advertising to boost sales. With the price cuts, Tesla’s gross margin dipped from a high of 25.1% in Q3 2022 to around 18% in Q3 of this year.
“On the other hand, [Tesla’s] volumes for the year are going to come in at about 40% [higher] from where they were a year ago. Investors are going to have to see the price cuts stop, and then you will see gross margins bottom in either the third quarter or fourth quarter,” he said.
Tesla and Ford’s charging deal stunner
On the eve of Memorial Day weekend, Ford CEO Jim Farley announced he would be joining Tesla CEO Elon Musk for a Twitter Spaces discussion, where the two would talk about “accelerating EV adoption” and make an announcement.
That announcement turned out to be a big one: Starting next year, Ford EVs will have access to 12,000 Tesla Superchargers in North America via a Tesla-supplied adapter. Then starting in 2025, all new Ford EVs will ship with Tesla’s NACS (North American Charging Standard) charging connector, as opposed to the CCS standard that most other EV automakers have been using.
Others caved as well. A stunned GM reversed course and signed its own charging deal with Tesla a week later. Soon the likes of BMW, Honda, Hyundai, Mercedes-Benz, Nissan, and Toyota struck their own deals to join the the Supercharger network, the biggest in the nation.
“The main upside for Tesla is that it helps increase Supercharger revenue (and utilization). Compared to cars this is low capital and steady revenue, and opening it up to non-Tesla vehicles effectively turns it into a standalone business unit,” Guidehouse energy analyst Mike Austin said to Yahoo Finance at the time.
“Tesla isn’t just a car company, it’s an energy provider, and as such, the more customers the better,” EV charging expert and “State of Charge” host Tom Moloughney told Yahoo Finance. “As long as Tesla continues to install Superchargers as it has been, the Supercharger experience will remain the best charging experience in the industry, even if other OEMs also join in.”
“I think it’s good for the other [automakers] and Tesla, too,” Future Fund’s Black added, claiming that the streamlined experience and ubiquity of the Superchargers on America’s roads will be a competitive advantage for Tesla, despite opening up the network. “Once you’re inside the Supercharger [station], the long-term bet is the next EV they’re going to buy is going to be a Tesla.”
The Cybertruck launch happened — finally
Following its debut four years ago, Tesla finally delivered its first Cybertrucks to long-waiting customers at the end of November. While hurdles like the pandemic and supply chain issues hurt Tesla’s Cybertruck production process, the fact it made it to production was a small miracle according to CEO Elon Musk, though the road ahead isn’t without roadblocks either.
On Tesla’s Q3 conference call, Musk said it would take a year to 18 months before the Cybertruck would be cash-flow positive and that by 2025 he expected a production run rate of 250,000 units a year. Musk added that Tesla would face “enormous challenges” in reaching volume production of the Cybertruck.
Gary Black sees the Cybertruck’s arrival as a huge catalyst for Tesla’s business, and the stock — despite the near-term issues.
“Cybertruck is huge — last time we saw this level of innovation is when they launched Model Y and it created a halo effect for the whole Tesla franchise,” Black said. “You saw volumes explode in 2021 after Model Y came out — went up 87% after being up 37% in the prior year. You’re going to see a similar halo effect this time; people are lining up to go into the stores, they can’t get a Cybertruck unless you ordered it four years ago.”
Canaccord Genuity analyst George Gianarikas was also impressed.
“Overall, we came away still convinced that this vehicle will change the streets — excite some, repulse others,” Gianarikas wrote in a note to investors after the event. “As far as some speculation that Cybertruck will mirror tech failures like the Microsoft Zune, Apple Newton, or Google Glasses…nah. Think again. We think this car will sell — particularly relative to our estimates of 200k units in 2025 and 500k in 2027.”
Black also believes the eventual ramp-up of the Cybertruck will boost Tesla’s bottom line, due to higher profitability.
“The Cybertruck is priced above the rest of the Tesla franchise,” Black says. “You’re not going to see many Cybertrucks delivered in 2023; we’re expecting maybe a hundred thousand in 2024. Once you get to 2025, 2026, that’s when you’re going to start seeing the margin increase because of Cybertruck [sales climbing].”
2024?
After another year in the books, investors and Tesla fans are wondering what 2024 will hold for them. While by no means a prognosticator or someone who owns a crystal ball, Black says there are a few things to keep an eye on.
Black has already mentioned the gross margin effect and possible bottoming, which some analysts think has already happened. Black says to keep an eye out for 2024, when he sees gross margin rising from approximately 16% to 17% and change next year. And of course he’s noted the “halo effect” that the Cybertruck will produce for Tesla’s other vehicles.
But there’s more. Black believes Tesla will reveal more details of its next-gen car, and will be a game changer. “The $25,000 vehicle — to me, that’s where Tesla can get up to 5 million units,” he said. “You’re going into the ‘mass market’ market. Tesla is viewed as a luxury brand; everybody’s going to want that, and they’re going to get a $7,500 credit for that if they buy it inside the US.” The effect of the federal EV tax credit could make this Tesla next-gen vehicle ubiquitous, Black believes.
Finally, Fed Chair Jay Powell and the FOMC are going to provide a huge boost for Tesla, if the central bank’s 2024 projections for interest rates stay intact.
“We saw the Fed pivot, for lack of a better word; they’re going to start taking rates down in the spring. We can see that from the dot plot; that helps long duration growth stocks the most, meaning high P/E stocks, where the earnings and cash flows are a couple of years out. You’re discounting earnings at a lower rate — that helps Tesla.”
Last but not least, there is CEO Elon Musk. The man with the soaring vision and drive to push his engineers and workers to the limit to achieve huge gains for what many consider the most advanced EVs on the planet.
But he has a way, to say the least, of sticking his foot in his mouth — and tarnishing his companies by virtue of his mere presence.
Black believes Tesla’s brand has taken a hit this year because of Musk’s comments. And even Tesla bulls like him have to acknowledge the collateral damage done by Musk to Tesla.
“It doesn’t help the Tesla brand. Whether we like it or not,” said Black. “Musk is part of the Tesla brand. He’s one of the few CEOs, when people think about the brand, they also think about the CEO.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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