Was Tesla's $17B Monday Meltdown Justified? Bullish Vs. Bearish Analysts Evaluate Model Y Price Cut Impact

Tesla, Inc. TSLA shares experienced a significant decline on Monday, driven by both a broader market downturn and the announcement of price cuts for the Model Y in the U.S. Over the weekend. Amid this market volatility, two analysts engaged in a debate regarding the justification of such a downturn.

Market Impact: Tesla’s market capitalization decreased by $17.33 billion on Monday, with the stock closing 2.81% lower at $188.13, as per Benzinga Pro data. 

Gary Black, Managing Partner at Future Fund, said the hit Tesla received was a “bit much” for a temporary price cut of $1,000 for the Model Y vehicles sold in the U.S.

The price cuts, according to Black, would cost the company $65 million in lost profits in 2024. “So 230x?” he asked, asking why punish the stock 230 times as much of the amount the company is set to lose from the price cuts. For calculation, he used the $15-billion market-cap erosion intraday when he posted the comment.

Reasoning with traders’ sentiment, Black hinted at them potentially discounting further price cuts. “Unless the market is assuming $TSLA mgmt will repeat this short-term promo every quarter,” he said.

See Also: Best Electric Vehicle Stocks

Bearish Perspective: Conversely, Gordon Johnson of GLJ Research provided a bearish analysis to justify Monday’s stock decline. He calculated that Tesla sold 74,500 Model Y cars in the U.S. during the fourth quarter, which, when annualized, equates to 298,000 vehicles. Thus, a $1,000 reduction would result in a $298 million impact. 

Johnson further broke down the per-share impact, estimating it at $0.0935 per share based on Tesla’s outstanding shares. Applying Tesla’s current P/E multiple of 60 times, Johnson suggested an implied stock move of $5.61 per share, closely aligning with the $5.44 drop witnessed on Monday. Notably, Johnson assumed the $1,000 cut to be applicable throughout the year, unlike Black’s calculations.

Why It Matters: Tesla faces various challenges ahead, including macroeconomic, geopolitical, industry-specific, and company-specific headwinds. With an aging product lineup and limited presence in the affordable segment, Tesla’s core EV business alone may not be sufficient to drive stock price performance. Analysts such as Alexander Potter of Piper Sandler suggest exploring alternative revenue-generating avenues, such as the energy business, to unlock additional value. Potter’s assessment suggests that Tesla’s stock is worth only $135 when considering solely the EV business for valuation.

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