Tesla executing sharp U-turn as growth prospects suddenly brighten
Briefing.com - 11:09 AM ET
Tesla (TSLA) is executing a sharp U-turn after shares sank to their lowest levels since January 2023 early last week, rallying by about 30% following the EV maker's Q1 earnings report on April 23. The initial spark was disclosed in that earnings release -- namely, the acceleration of production for new vehicle models, including the launch of a lower-cost model -- but a significant development regarding TSLA's full self-driving (FSD) system is fanning the flames today. Specifically, the Wall Street Journal reported that China's government offered tentative approval for TSLA's FSD technology, potentially opening the door to another new growth catalyst, further easing fears that TSLA's growth would remain in neutral or reverse in the coming years.
Not only would receiving approval in China create a new substantial subscription revenue stream, but it would also help to stop the bleeding in terms of market share losses. TSLA's recent struggles in China are well known with sales in its second largest market slipping by about 4% in Q1 as EV makers like BYD Company (BYDDY), Xpeng (XPEV), and NIO (NIO) take share. Given that some of these Chinese EV companies, including XPEV, already offer advanced driver assistance systems, TSLA could close that competitive gap by including FSD technology.In the face of declining deliveries (-9% in Q1) and eroding ASPs due to price cuts, Elon Musk has tried to steer investors' attention towards TSLA's AI and FSD progress as he attempts to rebrand the company as an AI/software company. In particular, he has touted TSLA's robotaxi as a centerpiece of the company's future, announcing that robotaxi will be unveiled on August 8.Until this past week, Musk's messaging wasn't sitting well at all since it appeared as if he threw in the towel for near-term growth, while waiting for TSLA's massive investments to hopefully pay off a few years down the road. For some context, capital expenditures jumped by 24% in FY23 to nearly $9.0 bln.Now, however, the tables have turned because the emergence of two potentially substantial growth catalysts (Model 2, FSD in China) have materialized, helping TSLA to bridge the gap between this recent slowdown and the launch of robotaxi and more software-based revenue. Assuming TSLA is granted full approval in China, it should hit the ground running given its partnership with Chinese tech giant Baidu (BIDU). According the Wall Street Journal, TSLA secured a mapping and navigation agreement with BIDU, which also eases Chinese regulators' concerns about data security risks.
Just one week ago, it was all doom and gloom for TSLA as investors stared down a bleak growth outlook for the next couple of years. Although plenty of uncertainty remains, including around TSLA's ability to meet Musk's accelerated timeline for new vehicle production, hope is being restored as TSLA reprioritizes its closer-in growth drivers.
Bullish
