Tesla stock outlook: ‘this is not Peloton’

Electric vehicle giant Tesla Inc (NASDAQ: TSLA) announced a round of price cuts for its Model X and Model S vehicles. We know the competitive environment in the EV space is growing by the day. The company’s recent investor day presentation didn’t inject any new enthusiasm with some commentators highlighting Tesla CEO Elon Musk’s tired look and unrealistic goals.

Based on Tesla’s 2.5% decline on Monday on an otherwise green day, investors seem more worried now than they were last week. 

Investor: ‘this is not Peloton’

COVID-19 lockdown darling Peloton Interactive Inc (NASDAQ: PTON) slashed its prices in 2022 when demand for at-home exercise equipment cratered. 

So it seems natural for some to start making the Tesla is the new Peloton argument. I get it. While investor reaction seems to be skewed negative, Tesla investor and The Future Fund Managing Partner Gary Black notes Tesla’s Model X and Model S vehicles account for a small part of the business and there is no reason to worry.

Black made the case on CNBC’s “Squawk on the Street” that Tesla’s now cheaper vehicles account for less than 5% of total volume so a price cut is merely a price adjustment to “get it right” and encourage growth. He said:

This is not Peloton. Peloton … anyone can replicate a Peloton. I go to the gym every day.

Meanwhile, Tesla is similarly slashing the price of its vehicles in Europe, including the cheaper Model Y car. But, Black notes this isn’t so much a price cut but a “discount to clear out excess inventory.”

Investors are missing the bigger picture

Black has previously modeled Tesla to sell 10 million units before 2030 and he isn’t shying away from this outlook. The case against the 10 million figure is based on the fact that some of the best selling vehicles in the US like the Toyota Corolla sell only 1.1 million units – a far cry from 10 million.

So how can Tesla outsell the Corolla by a factor of nearly 10 to 1? Black explains Tesla’s “next-gen platform” that allows the company to enter into the mass market and boast a compact car, a “baby” SUV, and the potential for a robo-taxi. 

Meanwhile, investors may be overlooking the fact that the Model Y is “on its way to become the best selling car in the world” as early as 2024 at 1.6 million units. Coupled with another 1.5 million Cybertruck units sold, it will become obvious how Tesla “can get to 10 million units” over the years.