Why the Cybertruck Can’t Save Tesla Stock
Since unveiling the Cybertruck on Nov. 30, Tesla (NASDAQ:TSLA) stock has fluctuated very little.
Many analysts are negative on the Cybertruck, saying that canceling the Cybertruck all-together would boost stock price. Others, like Cathie Woods, are bullish on it. Let’s see who is right.
Why the Cybertruck is bad for Tesla
The bearish thesis started when Musk himself hampered expectations. He said that the Cybertruck would be hard to scale and take until 2025 to generate cash flow.
Tesla can only mass-produce the Cybertruck two years from now at 250,000 units and has 2 million of pre-orders already. Assuming an average price tag of $80,000 and selling out its inventory, that leaves $20 billion in revenue for 2025. Not bad.
However, Morgan Stanley estimates the Cybertruck will contribute less than 5% in revenue and close to 0% in profit.
There is a tremendous increase in price from when it was unveiled. At the time, the Cybertruck received lots of hype for its $39,000 price tag, just $10,000 less than the most popular pickup truck (the F150).
The Cybertruck was also expected to come with 500 miles of range. However, the Cybertruck’s range will only be about 370 miles.
Tesla is competing for buyers of traditional pickup trucks who live in more rural areas and have modest incomes. With such a high price tag and limited range, it remains to be seen how well Tesla can penetrate the market.
Finally, investors will not view Tesla’s financials favorably. Earnings have already decreased over 44% YoY due to price cuts and operating expenses from Cybertruck and AI. With more capital expenditures needed to produce the Cybertruck, Tesla’s valuation will be at risk in the short term due to its financials.
Cybertruck and a TSLA Stock Bump
With the Cybertruck, Tesla is entering a lucrative market. The top 5 best selling vehicles in the US have been pickup trucks. In fact, the F-series trucks from Ford have been the best-selling vehicles for 41 years.
Despite the high sticker prices now, Tesla will likely be able to lower costs down the line like they’ve done with their sedans. We also can’t forget that Tesla’s production process has always been more advanced, since it involves fewer moving parts and is more efficient. As a result, it still has one of the highest margins in the industry.
Not to mention, Tesla has a fierce following and still has 2 million of preorders, ensuring that the Cybertruck will bring a substantial amount of revenue in its first few years.
Finally, the Cybertruck launch could do a lot for its brand. When Tesla released the Model Y in 2020, the greater brand awareness led to higher sales of the Model 3. With the Cybertruck being such a futuristic vehicle, it will no doubt generate more hype and brand awareness for Tesla.
My Verdict
Ultimately, my verdict is that the Cybertruck still won’t be enough to save TSLA stock. Considering that Tesla’s recent price cuts haven’t worked in driving sales, the company has more fundamental problems to worry about.
The Cybertruck could turn out to be a good expansion for Tesla, however, I believe that the short term cash burn will only worsen investor sentiment. Until we see early data of how the Cybertruck is selling, it’s very hard to say that it will be positive for Tesla’s stock.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
