Tesla price cuts could backfire, fund manager says, warning of a 'huge demand problem' on the horizon

Published Wed, May 1 202410:39 PM EDTUpdated Thu, May 2 20246:28 AM EDT

Tesla 's share price remains "very expensive" despite a recent earnings report that failed to impress investors, according to Mark Hawtin, investment director at GAM Investments. The electric vehicle maker's stock has risen 24% since the earnings release on April 23 , driven partly by CEO Elon Musk's optimism about the potential for robo-taxis and a deal reportedly with Baidu that will enable Tesla to introduce driver assistance features in China. However, Hawtin argues that Tesla's fundamentals are not promising. TSLA 1Y line "The bottom line here is the fundamentals are not good. There's a huge plethora of offerings in the market now for EVs, and Tesla is lagging behind," he said. Other automakers are seeing strong growth in their electric vehicle sales even as the overall global auto market faces a downturn, adding to the pressure for Tesla. Volkswagen this week reported that new orders for electric cars more than doubled in Europe in the first quarter of 2024 compared to the previous year. Similarly, BMW said earlier in April that sales of fully electric vehicles at its core brand jumped 41% in the first quarter. One key factor that could impact Tesla's demand in the future is the rising cost consumers are likely to face when leasing its vehicles, according to Hawtin. He pointed out that until two years ago, secondhand values for Tesla cars remained extremely high, allowing for low lease prices. However, as the EV maker aggressively cut the cost of new vehicles globally, used car values have dropped in parallel. According to Hawtin, who runs long and short funds at GAM, financial institutions that loan the vehicle out to consumers are likely to raise the cost of future leases to make up for the loss in value. "You could lease a Model 3 for $300 a month in the United States … now that number is $900," he said. "All these leases will be rolling over, and those owners who were paying $300, essentially a false lease price because secondhand prices were so high, will now be having to pay $900 and will find that unaffordable." "I think there's going to be a huge demand problem for Tesla," he added. Hawtin does not hold a position in the stock. Tesla did not immediately respond to a request for comment. This sentiment is echoed by analysts who note that pricing and demand continue to be pressure points for Tesla. "While the recent price cuts may help, we struggle to see a path to positive volume growth despite CEO Musk's commentary," said Guggenheim analyst Ronald Jewsikow in a note to clients on April 24. Guggenheim has a sell rating on Tesla with a $126 price target, indicating a further 30% downside. Piper Sandler analysts Alexander Potter and Ben Johnson suggested that "due to an aging product lineup, more price cuts may be necessary." However, they reiterated their "overweight" rating for the stock with a price target of $205 – or 12% upside – for Tesla.