Tesla Stock Is Rising Again. Why It Refuses to Sell Off.

Instead of building the Model 2, Tesla would focus on producing self-driving robotaxis, the Reuters report said. The decision came down at a February meeting.

This same strategy was outlined in Walter Isaacson’s biography of CEO Elon Musk, who preferred the robotaxi to the Model 2 as he and his subordinates considered plans for the company.

Musk relented eventually around 2022, according to the book, with executives convincing him that Tesla could do both.

There is a robotaxi coming. Musk tweeted it would be unveiled on August 8. Investors can look forward to the event, but a decision not to produce a Model 2 would be a monumental call, with implications felt across the industry. The Street’s long-term estimates of Tesla’s deliveries depend on the company expanding its product lineup to serve more of the automotive market. Tesla also pointed out in its first-quarter earnings report that a lower-priced vehicle would boost growth in coming years.

“This would be a dark-cloud moment for Tesla…would be a nightmare if this was scrapped,” said Wedbush analyst Dan Ives, adding he would be surprised if Tesla scrapped the car.

New Street Research analyst Pierre Ferragu would be surprised, too. “Tesla has always conceived the next-gen platform as fit for both Robotaxi and entry model,” said Ferragu. “It was the result of a debate between Elon and his chief designer, Elon favoring an all-in Robotaxi approach, and the team defending a balanced Robotaxi-and-affordable-car plan. That has not changed and I assume the February meeting was about the Robotaxi plan being a stark advantage for Tesla over the Chinese, and Elon’s main strategic objective.”

Tesla faces stiff competition in China with dozens of auto makers offering dozens of all-electric models, many starting below $20,000.

A mass-market robotaxi would be a new, unique product. It, of course, would depend on Tesla delivering the technology needed for a truly self-driving car. While impressive, Tesla’s driver-assistance technology requires human supervision 100% of the time today.

The initial rebound that followed Musk’s denial brought the stock back to almost $168 a share, some 2% below its closing level on Thursday. That put it above the closing price of $166.63 on Tuesday, reached after the EV maker reported first-quarter deliveries of about 387,000 units, down almost 9% year over year.

It was the biggest year-over-year decline on record and missed the lowest Wall Street estimates by some 20,000 units.

Tesla shares had been remarkably resilient until Friday’s report about the Model 2. They rose as high as $177.19 on Thursday and ended with a 1.6% gain at $171.11.

One reason for the bounce from the disappointing delivery news is the narrative surrounding the number. Bulls believe the first quarter was an anomaly driven by Model 3 production problems in Fremont, Calif., Red Sea shipping delays, and lost production in Germany.

Musk blamed the market, calling it a tough quarter for EV makers in general, citing

BYD

numbers.

Chinese EV maker BYD delivered about 624,000 all-electric and plug-in hybrid vehicles in the first quarter, down about 34% compared with the fourth quarter of 2023. But sales grew about 14% from a year earlier. Tesla sales dropped almost 9% year over year.

Sales “crashed while [Tesla] overproduced to a new record [of] excess inventory,” wrote Bond Angle’s Vicki Bryan in a report Wednesday. Tesla made 433,000 vehicles in the first quarter, so inventories increased by more than 46,000.

It was the biggest gap between production and deliveries ever. “This doesn’t square with Tesla’s explanation that sales were hurt by ongoing production issues,” Bryan wrote.

Another reason for the bounce is Wall Street. No one downgraded the stock following the delivery report, and key numbers didn’t change all that much.

Morgan Stanley analyst Adam Jonas cut his target price on the stock to $310 from $320. He maintained his Buy rating even while cutting his 2024 delivery number to 1.75 million units from 2 million. The new estimate is about 3% lower than the 1.8 million units Tesla delivered in 2023.

Overall, Wall Street now expects 2024 earnings per share of about $2.78, according to FactSet, down about a dime from the end of March. The average analyst price target started the week at about $200 a share. It’s now $198.

A third reason is the starting point. “The stock’s already down a lot and, perhaps, that terrible delivery number was discounted to some degree,” says John Roque, senior managing director and head of technical strategy at 22V Research. Tesla stock entered the week down almost 30% year to date.

All that recent trading action—and the Model 2 report—makes Tesla’s first-quarter earnings, coming April 23, and second-quarter delivery number, coming July 2, all the more important.

Write to Al Root at allen.root@dowjones.com