Tesla, Inc.‘s (NASDAQ:TSLA) fundamentals have suffered this year amid the lukewarm demand outlook and the impact of successive price cuts on margins. An analyst on Tuesday outlined what the company needs to do to get its fundamentals back on track and taste continued success.
What Happened: “Model 2 is critical to the continued success of $TSLA,” said New Street Research’s Pierre Ferragu in a post on X, formerly Twitter.
The analyst also reposted his research from February to make his case. He had said then that the Model 2 would likely be 15% shorter, 30% lighter, and be powered by a 25% smaller battery than the Model 3. He said the cost of manufacturing the Model 2 EV will likely be 37% less than it takes to build the Model 3. He added that the expectation is premised on the smaller build of the EV as well as the design, architecture, and manufacturing innovations.
Including the full self-driving hardware, the cost of manufacturing at scale will likely be $21,600, Ferragu estimates.
The analyst said This will help Tesla maintain an auto gross margin of around 30% in February. “Moreover, at $25k MSRP, Model 2 addresses 80% of the car market and paves the way for Tesla to exceed 12m (39.37 feet) units and $400bn auto revenues in 2030,” he added.
Why It’s Important: Ferragu is not the only analyst who is sold on the importance of the Model 2 to the Tesla growth story. Tesla bull and Future Fund Managing Partner Gary Black said in a post this week the Model 2 will benefit Tesla in the same way the iPhone worked wonders for Apple. He said that just as competitors such as Nokia, Motorola, and BlackBerry stopped investing in smartphones following the iPhone launch, the Model 2 will deter ICE manufacturers from investing in EVs.
The need for an affordable model from Tesla’s stable can’t be more acute than now, given the uncertain economic conditions that have left consumers very cautious. The margin-boosting impact the analysts are modeling with the Model 2 can help stem the slide in Tesla’s core auto gross margin.
Although the Cybertruck, which is all set to launch on November 30, is generating all the hype, Tesla CEO Elon Musk’s recent comments regarding a difficult ramp-up have tempered expectations.
Tesla stock ended Tuesday’s session at $237.41, up 6.12%, according to Zenger News Pro data.
Produced in association with Benzinga
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