Benzinga - by Shanthi Rexaline, Benzinga Editor.
Tesla, Inc. (NASDAQ:TSLA) shares have been on the mend after the sharp decline amid the release of the first-quarter deliveries. As analysts continue to dissect the numbers to decipher what went wrong, Future Fund’s Gary Black on Thursday used the opportunity to push for the case of advertising as the panacea for Tesla’s woes.
What Happened: Black said his estimate showed that the Elon Musk-led company’s price cuts since 2023 reduced its revenue by about $10 billion. Tesla initiated price reductions for electric vehicles starting in late 2022 in China, subsequently extending these reductions to other regions beginning in 2023.
The fund manager used the Musk-owned X platform’s AI chatbot Grok and third-party trade sources to arrive at the company’s potential ad spending. “GROK and third party trade sources estimate $TSLA spent
Tesla, which previously vouched by its direct-sales model, has buckled under pressure from investors and fans and begun to warm to advertising on a small scale. Apart from advertising on Musk-owned X, it also runs ads on YouTube. Very recently, the company began putting ads on Meta’s flagship app Facebook and Instagram.
Reiterating his long-held view, Black said Tesla should revisit the mix of price cuts versus advertising, especially as volume has begun to show year-over-year decline. These ads should convince ICE owners of the benefits of switching over to fully electric vehicles and underline the lower costs, charging convenience, near autonomy, safety and environmental benefits, he said.
Some $TSLA bulls pretending TSLA didn't cut EV prices throughout 2023 and into 2024 1Q. We estimate the TSLA price cuts reduced $TSLA 2023 revs by ~$10B. GROK and third party trade sources estimate $TSLA spent— Gary Black (@garyblack00) April 4, 2024
Why It’s Important: Tesla reported Tuesday its first year-over-year decline in quarterly deliveries since the 2022-second quarter. Black does not expect much improvement in the second quarter either, as he models a year-over-year drop yet again.
While doing little to improve volume, the price cuts have pinched the company’s bottom line as the core auto margin continues to contract.
Musk shrugged off the weak first-quarter deliveries as an across-the-industry predicament. But slowing EV adoption could stymie any near-term recovery. More details on the near term could be known when Tesla reports its first-quarter earnings later this month.
In premarket trading, Tesla shares rose 1.29% to $170.55, according to Benzinga Pro data.
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Tesla CEO Elon Musk Image made via photos on Shutterstock
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