Tesla's Price Cuts Produce 'Sugar High' But Lack Long-Term Benefit, Says Analyst: Ad Campaign 'Would Surely Help'

Wall Street analysts have not been big fans of Tesla, Inc. TSLA string of aggressive pricing moves and their anti-price cuts opinions have impacted the stock to some extent.

What Happened: Tesla bull and Future Fund co-founder Gary Black recently took to Twitter to explain the rationale behind analysts’ stance on the price cuts. “Price discounts are the ultimate short-term tool and produce a ‘sugar high’ as volumes are pulled forward,” he said.
Wall Street does not support this “short-term thinking,” he added.

Black noted that when Wall Street analysts calculate price targets they go out to 2027 or 2030 earnings, estimate a forward growth rate from that date forward to calculate P/E, and then discount the resultant value back to the present. This is long-term thinking, he said.

The fund manager also delved into the merits of a buyback. There is no immediate positive benefit for Tesla as its current 4% return on investment on cash exceeds the company’s current earnings yield but on an internal rate of return or IRR, based on 2027 or 2030 values, buybacks are highly accretive, he said.

See Also: Everything You Need to Know About Tesla Stock

Advertising Could Be Effective: Black noted that there are many who are interested in electric vehicles but stick with their ICE counterparts due to range anxiety. “An ad campaign to ease range anxiety showing how easy it is to recharge your TSLA at one of TSLA’s 45K charging stations or the comfort of your garage would surely help,” the analyst said.

Boosting Stock Price: Tesla’s stock price can increase even if the company’s EV market share is falling as long as the company can show 35%+ volume growth. “But it can’t put up 10-15% volume growth as overall share grows or the P/E will go down by half,” he said.

Metrics that can be long-term drivers of Tesla, according to Black are:

• Deliveries growth, which is a function of EV adoption
• Auto gross margin percent, excluding regulatory credits

Tesla’s Pulling Points: Despite all his criticism about Tesla, the EV maker’s stock accounted for 5.6% weighting of Black’s Future Fund Active ETF FFND.

His conviction in Tesla is based on the view that Cybertruck and the $25,000 Model-2 would crush the competition. Additionally, the fund manager is of the view that CEO Elon Musk will realize cutting the Model-Y price gets him nothing and would opt for advertising by the second half.

Tesla stock, trading at 32 times the estimated earnings per share of 2024 and with the potential for seeing 30%+ volume growth, is too cheap, he said.

Tesla closed Friday’s session at $165.08, up 1.28%, according to Benzinga Pro data.

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