Tesla shorts won out on Friday, with the stock dropping 13 percent. The selloff came as a result of news that the electric carmaker would be slashing thousands of jobs and that fourth quarter results would be lower than its reported third quarter earnings. With the company posting fourth quarter results next Wednesday, further near-term volatility is likely over the next week.
In the age of Tesla’s newfound profitability, the company is seemingly repositioning itself for market coverage and viable lower-price vehicles, with a $35,000 car as the steadfast goal.
“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months,” wrote CEO Elon Musk in a blog post. “Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.”
While the news was taken negatively, this should be relatively positive news for Tesla shareholders. It reaffirms that Tesla is a company focused on growth. Even with fourth quarter profits anticipated as smaller than the previous quarter’s the company is still expected to post a profit, something that was once seen as an impossibility for Tesla, Inc.
“In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3,” wrote Musk. “This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.”
Moreover, the company’s workforce grew by approximately 30 percent in 2018, according to Musk, so tapering off seven percent of its workforce is still significant year-over-year growth. Musk continues to strive for full market coverage and towards a reality where Tesla is at the forefront of the electric vehicle revolution.
“…starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” wrote Musk in his blog post to Tesla Inc. employees. “Moreover, we need to continue making progress towards lower priced variants of Model 3.”
The CEO noted that currently, the most “affordable” option for Tesla buyers was their mid-range Model 3, which runs for $44,000. At the midpoint of the year, due to a decreased tax credit, the sticker price will automatically rise by almost $2,000 ($1,875), and will rise again at the end of 2019 when the tax credit disappears. The decreased tax credit further fuels the urgency in releasing lower-price options.
Shares lost around $45 in value on the news, falling from $347 to $302. Luckily, going into trading Tuesday, Tesla will be riding the tailwinds of positive news. On Monday it was announced that the carmaker’s accessible Model 3 has been approved for delivery in Europe.
Tesla will announce their fourth quarter results on Wednesday, January 30. Until then, the stock is likely to be volatile. With the decreased guidance already relatively priced in, any hard selloff on the earnings release is unlikely.