Tesla, Inc. TSLA stock has recovered from a six-session slump with back-to-back gains on Tuesday. Against the backdrop, an analyst pointed to the biggest risk which could be an overhang on the stock.
What Happened: The “biggest risk” for Tesla is new configurator price cuts, said Future Fund Managing Partner Gary Black. New configurator vehicles are fresh, customized vehicles configured by users using the digital solution provided by the company on its website.
If Tesla goes ahead with lowering configurator vehicle prices, it would be matched by competitors and will unlikely give the volume lift the company is hoping for, the fund manager said.
Black sees the action as reducing Tesla's 2023 and 2024 earnings by 35% and 27%, respectively. He also reiterated his view that discounts on inventory vehicles are not the same as configurator price cuts, with the former only impacting current quarter profitability.
So far, Tesla has reduced configurator prices of only 18% of made-in-China Model Y vehicles by volume, which is "hugely encouraging," he said.
See Also: Best Electric Vehicle Stocks
Why It's Important: Tesla's auto gross margin, excluding regulatory credit, has been on a downward trajectory since the company began cutting prices in various geographies in the fourth quarter of 2022.
Despite the second-quarter earnings and revenue outperformance, the stock was mostly down post-earnings (July 19). The weakness was mainly attributed to a lack of visibility into the margin outlook.
CEO Elon Musk added fuel to the fire by suggesting on the earnings call that more cuts could be in the offing as the risk of a rising rate environment remains.
In premarket trading on Wednesday, Tesla stock rose 1.21% to $236, according to Benzinga Pro data.
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