Tesla is hosting a highly anticipated investor event on March 1. A lot will be discussed, including Tesla’s growing power business and increasing cash flow, but what Wall Street really wants to see is that the EV maker is planning a new car.
More than a few analysts believe a new, lower priced Tesla (ticker: TSLA) is needed to guarantee Tesla’s growth through the end of the decade, as well as to defend its market share against all the EV models coming from traditional auto makers.
As of Friday, Tesla stock was up about 60% year to date. After a rally like that, the stock needs a new factor to help it to rise, wrote Wells Fargo analyst Colin Langan in a Friday report. He believes a $30,000, third-generation vehicle could be that catalyst.
The Model S and X are Tesla’s first-generation vehicles. Today, those cost roughly $100,000 each. The Model 3 and Y are build on the second-generation platform and cost roughly $50,000 to $60,000 each.
“The $30,000 price tag of the new Gen. 3 dramatically expands Tesla’s addressable market,” added Langan. Tesla’s current lineup only covers about 55% of the total auto market, according to the analyst. With a $30,000 vehicle, Tesla’s line up would cover about 95%.
New Street Research analyst Pierre Ferragu and Bernstein analyst Toni Sacconaghi both agree. “The most important issue for Tesla going into its analyst day is the status of its next-gen, lower-cost vehicle platform,” wrote Sacconaghi in a Wednesday report.
He says Tesla needs the lower-price EV to meet investors’ lofty growth expectations. “Our research has indicated that EV models that have generally struggled to increase volume beyond the third or fourth year of introduction,” he wrote.
The Model 3 made its debut in 2017. The Model Y arrived in 2020.
Wall Street expects Tesla to sell more than a million Model Ys in 2023. That would likely make it the best-selling car on the planet, including gasoline powered cars. Growth from there could be hard: Pushing sales of any one model to two million units a year is a very tall order.
At the moment, the Toyota Motor (TM) Corolla is the best-selling model in the world, with sale of about 1.1 million in 2022. The Model Y was the fourth-best-selling vehicle with about 760,000 units shipped.
Langan, for his part, rates the shares at Hold. His target for the price is $190. Sacconaghi rates shares at Sell, with a target of $150 a share. Ferragu rates shares at Buy and has a $150 price target.
Ferragu acknowledges the need for a low-price car and thinks one will be ready by 2025. He also believes that the car could retail for about $25,000 given Tesla’s lead in battery costs and EV manufacturing.
He sees a low-price Tesla selling more than a million units a year by 2026. He also believes the Model 3 and Y can both easily sell more than a million units a year. He doesn’t share Sacconaghi’s concerns.
In addition to a new car, Ferragu sees good prospects for Tesla’s energy-storage business in 2023. That is another topic that should come up on March 1.
“Tesla has been supply constrained in energy storage for as long as we can remember,” wrote Ferragu in a Wednesday report. “And [with] the ramp of the new megapack fab in Lathrop, which quadruples the company’s production capacity, we expect an inflection point in 2023 to 2024.”
Megapacks are Tesla’s energy-storage products for utilities. They help power companies make wind and solar generation assets more reliable by storing energy so that it can be released to the grid when the sun isn’t shining and the wind isn’t blowing.
He sees energy storage adding 20 cents and 55 cents, respectively, to Tesla’s earnings per share in 2023 and 2024. Earnings at that level would be a pleasant surprise for investors.
Wall Street currently projects earnings per share of about $4.10 and $5.60 for 2023 and 2024, respectively. The majority of that comes from Tesla’s car business.
Canaccord analyst George Gianarkas thinks Tesla could have a couple of other things in store for investors on March 1. He is on the look out for a stock buyback, as well as new commercial vehicles. Tesla has one commercial product: Its semi truck began shipping in December.
Gianarkas rates Tesla Shares Buy. His price target is $275 a share.
Cheaper Teslas, new commercial vehicles, new storage businesses, and potentially using capital for buybacks amount to a lot for shareholders to look forward to this coming week.
Tesla stock closed down 2.6% at $196.88 on Friday. The S&P 500 and Nasdaq Composite were off 1.1% and 1.7%, respectively.
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