Tesla, Inc. TSLA shares rebounded by over 2.50% on Thursday but continues to remain locked in a depressed trading range amid concerns about potential volume decline and further erosion in margins. A fund manager on Wednesday allayed at least one of these concerns.
What Happened: Tesla is unlikely to cut prices further as the management has learned that cutting prices in excess of the declines in the “cost of goods sold” will give the company no incremental volume, said Gary Black, Managing Partner at Future Fund.
The reason for the inelasticity of demand, according to Black, is competitors matching the price cuts, “leaving everyone worse off.”
The fund manager also sees full-self driving take rates increasing as it approaches Level 4 autonomy.
As a result, the Future Fund co-founder sees the scope of the auto gross margins stalling the declining trend. “It's becoming more and more apparent auto gross margins have bottomed,” he said.
See Also: Everything You Need To Know About Tesla Stock
Why It’s Important: If Black’s prediction is accurate, it is good news for investors. Lack of visibility into the margin outlook is the primary reason cited by analysts for the stock’s underperformance. That said, the premises behind his thesis are not on solid ground.
Tesla has continued with its price tinkering this year, and as recently as last weekend, the company dropped the price of its Model Y Long Range variant by $1,000 in the U.S. for a month. It has raised prices as well for some models and in some geographies.
The FSD, which is in advanced beta-testing, has courted controversy over its credentials as a credible autonomous driving system and also over its safety.
With no new vehicles due in the near term and the Cybertruck likely taking more time to ramp-up and be a meaningful driver, volume growth could pose a problem for Tesla in the near term.
The stock closed Wednesday’s session up 2.55% at $188.71, according to Benzinga Pro data.
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