Tesla  (TSLA) – Get Free Report spent last year engaged in a fierce price war — meant, according to CEO Elon Musk, to combat high inflation — that pushed the average price of a Tesla down about 25% year-over-year. 

The carmaker’s gross margins have fallen in tandem with the falling prices, pushed down in the third quarter of 2023 to 17.9%, below the 25.1% margins the company boasted in the year before. 

Just a few weeks into 2024, Tesla re-engaged its price-cutting efforts, recently cutting the prices of its Model 3 and Model Y in China, before cutting the prices of its Model Y in Germany. 

Related: This legacy automaker took a leaf out of Tesla’s book, then beat Elon Musk to the punch

Gary Black, managing partner of the Future Fund, cut his full-year 2024 earnings estimates for Tesla in response to the price cuts, saying the move will cut Tesla’s earnings per share by 15 cents this year. 

“In essence, Tesla is training its customers to wait for a deal,” Black said, calling the move “value destructive.”

Tesla’s price cuts, Black said, do little to serve the company’s mission of accelerating the advent of sustainable transportation. Tesla management, according to Black, is stuck in a short-term game of cutting prices to advance orders for one or two months; that order boost, he said, reverses the moment competitors match prices. 

The two things that would accelerate Tesla’s mission, according to Black, are the introduction of its long-awaited $25,000 next-generation vehicle and an acceleration of electric vehicle adoption, something Black thinks Tesla could enhance through an advertising campaign. 

Musk in December said Tesla is “quite far advanced” in its work on developing a low-cost vehicle to be produced at high volumes, though details remain scarce.  

“Tesla should focus on its long-term mission of accelerating EV adoption and spend less time managing short-term order flow,” Black said. 

Related: Tesla investors should be pleased with Elon Musk’s latest big claim

Tesla and EV Adoption

Though EV adoption hit new records in 2023, the rate of that growth, at 30%, was half the 60% growth rate notched by the industry the year before. 

Even as EV adoption and demand continue to grow, albeit at a slower pace, consumer sentiment has shifted as carmakers strive to move adoption away from the early adopters and to the masses. Consumer concerns over high prices, range and lack of charging infrastructure remain significant hurdles to mass EV adoption. 

A $100 million Tesla ad campaign designed to showcase the benefits and true cost of owning an EV, according to Black, “would almost certainly accelerate EV adoption more than cutting price in the US by another ($2,000 per vehicle).” 

Cutting prices by $2,000 would cost Tesla $1.4 billion in 2024, according to Black. 

Ongoing growth in EV adoption, Black said, will translate to growth in Tesla — “surging EV adoption is the basis for our Tesla investment thesis,” he said. 

Black, who has a $300 price target for Tesla, views the introduction of a cheaper next-generation vehicle as a major catalyst for the stock. 

Black has been publicly pushing Tesla to advertise for months. Musk, addressing calls for advertising campaigns during the copmany’s third-quarter earnings call, said that affordability is the most important thing.

“Informing people of a car is great. But they cannot afford … (it) doesn’t really help,” he said at the time. “That is really the thing that must be solved is to make the car affordable for the average person.”

Shares of Tesla, down more than 14% for the year so far, fell a further 1.5% midday Thursday. 

Contact Ian with AI stories via email, ian.krietzberg@thearenagroup.net, or Signal 732-804-1223.

Related: Here’s the full story behind electric vehicle adoption

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