Over the weekend, Tesla, Inc. (NASDAQ:TSLA) made significant waves in the automotive industry by implementing coordinated price cuts for its electric vehicles across various global markets. This decision, while aimed at potentially stimulating demand and maintaining competitiveness, sparked a range of reactions among investors and industry observers.
One notable response came from Gary Black, the co-founder and managing partner of Future Fund, a firm that had previously held a substantial position in Tesla. Black took to social media platform X to express regret over the fund’s decision to reduce its Tesla holdings and offered a candid assessment of the company’s recent actions and its impact on its financial standing.
Future Fund had previously held a position representing 12.2% of its portfolio in Tesla, a testament to the firm’s bullish outlook on the electric vehicle maker. However, as concerns over deteriorating fundamentals arose, the firm gradually reduced its exposure to Tesla, ultimately lowering its position to 2.7% in September 2022. In hindsight, Black admitted that the decision to retain even a small percentage of the Tesla position was a mistake, suggesting that the entire position should have been liquidated.
Black’s assessment of Tesla’s recent developments was a mix of recognition of correct predictions and acknowledgment of misjudgments. He pointed out several areas where he believed his analysis had been accurate, including skepticism regarding the effectiveness of Tesla’s price cuts in driving significant volume growth, the need for targeted marketing strategies to encourage traditional internal combustion engine (ICE) vehicle owners to transition to electric vehicles (EVs), and doubts about the near-term feasibility of achieving Level 4/5 autonomy required for launching autonomous ride-hailing services, or “robotaxis.”
However, Black also admitted to underestimating the potential impact of Tesla’s Cybertruck on the company’s overall franchise and misjudging the significance of its persistent price cuts. He criticized Tesla bulls for their overly optimistic outlook despite challenges faced by the company, noting that some investors dismissed realistic predictions and attacked analysts like himself and Ross Gerber.
In response to Tesla’s latest round of price cuts, Black revised his earnings estimate and price target downward. He estimated that the price cuts in North America alone could result in a loss of up to $900 million in annual revenue or 20 cents per share in earnings for Tesla. With the price cuts extending to other regions, Black projected an even larger revenue impact of $2.7 billion annually, along with a 60-cent per share reduction in earnings.
The impact of Tesla’s price cuts was not confined to North America, as reports indicated reductions in the prices of certain EV models in Germany and other European countries. Black warned of further estimate cuts by Wall Street analysts, many of whom had already revised their projections ahead of Tesla’s first-quarter earnings report, scheduled for release after the market close on Tuesday.
In summary, Tesla’s coordinated price cuts over the weekend prompted a reflection on the part of investors and analysts like Gary Black, highlighting the complexities surrounding the EV giant’s strategic decisions and their implications for its financial performance and investor sentiment. As Tesla prepares to announce its first-quarter results, market observers eagerly await further insights into the company’s operational performance and outlook amidst evolving market dynamics.
