3 things Tesla should do after its market value shrunk $80 billion in a single day, according to Wedbush
Antonio Masiello
- Tesla's earnings disappointed Wall Street, and the company saw a steep sell-off Thursday.
- Wedbush's Dan Ives said there are a few specific things Tesla can do to calm investors.
- He called for an end to price cuts, more clarity on AI, and for Elon Musk to focus on the company.
Massive disappointment in Tesla's fourth-quarter earnings prompted a harsh reaction from Wall Street and spurred the biggest sell-off in the stock in 21 months.
The 12% drop on Thursday erased $80 billion in market value, as profits and revenue came in below expectations. Tesla's warnings of even slower growth to come only amplified concerns, and outlooks tumbled.
Following the report, Wedbush Securities' Dan Ives, a long-time Tesla bull, criticized Tesla's failure to reassure investors, and characterized the conference call following the earnings release as a "train wreck."
"Tesla is going through 'one of these moments' with yesterday a dark day for the bulls (and us) with the door left open for more price cuts and a lack of guidance for 2024 putting massive pressure on shares," Ives wrote in a note on Friday.
Though Wedbush will maintain its outperform rating on the EV maker, Tesla has been removed from the Wedbush Best Ideas List. Ives said there are specific things the company can do to right the ship and get back in investors' good graces.
Here are the top tasks for Elon Musk's car company.
Stop cutting prices
Growing market competition has pushed Tesla to slash prices on its vehicle models by roughly 25% through last year, making its EVs cheaper than some gas alternatives.
But this strategy, meant to boost demand, has cut deep into profit margins, something investors have had difficulty digesting. To that end, Ives called for Tesla to stop depreciating its cars, and instead focus on holding margin leverage over other automakers.
The company should also offer a realistic production and delivery timeline for the Model 2, and a sub-$30,000 vehicle in 2025, he said. This move could avoid a repeat of the Cybertruck, as production timelines were stretched out for years on that vehicle model.
Get serious on AI
Tesla should host an "AI day" before the summer so that investors can learn more about Dojo, Optimus, and Full Self-Driving artificial intelligence initiatives touted by CEO Elon Musk.
The car giant must also pursue an aggressive AI acquisition spree and find around $30 billion in capital to make these projects possible, Wedbush said. Long-term AI revenue targets are also needed.
Though Ives has based his optimism for Tesla on speculation that it will become an AI leader, Musk has recently threatened to pull AI projects from the carmaker, unless his stake was increased to 25%.
To make this happen, Ives called for the creation of an "X Holding" structure, that includes the AI initiatives. He should also be offered a compensation package that requires he remain CEO until at least 2030.
Get outside capital to fund X
Many investors have shown irritation over Musk's purchase of X, formerly Twitter, considering it a distraction, and were dismayed as they watched Musk sell massive amounts of Tesla stock to fund his $44 billion acquisition in October 2022.
Assurances that Musk will not sell further shares to fund X are necessary, Ives said. The firm should instead secure outside capital.
Other changes Ives wants to see include a $10 billion share buyback as a show of confidence for investors. He also highlighted a need for improved conference calls, criticizing recent calls as "horror shows."