Tesla stock fell more than 5% on Friday. Investors have a few things to blame for this decline.
Nate Smallwood/Bloomberg
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Tesla
Stocks fell after some new devices were launched. However, software is probably the biggest reason for this decline.
Shares of the electric vehicle maker had a shabby trading session on Friday, dropping 5.1%, while shares of
Standard & Poor’s 500
It rose by 0.2%. the
Nasdaq Composite
It was flat.
Most analytics, incl BarronFocus on the new Model 3 launched in China and Europe. An updated version of the three models should be a good thing, boosting sales of the model that’s been on the road since 2017. But the news arrived hard, perhaps because
Tesla
The stock is up about 18% in the two-week period through Friday trading, or perhaps because investors wanted more variations on the new Model 3, which comes with a new interior and a longer driving range per charge, among other improvements.
Something else may have sent stocks lower. Along with the new Model 3, Tesla has lowered the price of its driver assistance software for fully self-driving (FSD) to $12,000 from $15,000. FSD is Tesla’s top-tier driver assistance feature that CEO Elon Musk hopes will eventually turn Tesla cars into truly self-driving cars. Essentially all driver assistance features require drivers to pay attention all the time.
A cut does not appear imminent. “The FSD price is actually very low, not high,” Musk said on his company’s second-quarter earnings conference call in July. “The value of a car increases exponentially if it is truly self-driving… and if the car is worth several times its original price, $15,000 is actually a low price for FSD.”
He also suggested on the conference call that people can test FSD as a monthly subscription. Perhaps the goal of lowering the price is to increase the number of people trying the system. Tesla did not respond to a request for comment about the change.
“We see the price cut reflecting poor prevalence rates for FSD,” Canaccord analyst George Giannarikas wrote in a report on Friday, adding that the cut was likely “an attempt by the company to accelerate its razor blade model.” In this case, the car is a razor and the FSD software is a razor.
Gianarikas is evaluating buying Tesla shares and has a price target of $293 per share.
Tesla seems a little cautious about how many customers have bought FSD, but 400,000 was a number brought up at Investor Day in March. In that time, Tesla sold nearly four million cars globally, which gave a profit rate of about 10%.
Tesla’s take rate should improve to around 13% to break even in sales at a lower price point. It would have to do a little better than that to break even on the gross profit generated by FSD sales, which would require the purchase rate to be something closer to 14%, assuming average software profit margins.
If the rate of take-over does not change as the price drops, Tesla will likely offer approximately $130,000 in gross profit in the last four months of the year. That’s just over 1% of all Wall Street earnings for the second half of 2023.
It doesn’t seem like much. However, investors do not like surprises.
Write to Al Root at [email protected]
(tags for translation)cars
