- A low-cost Model 2 is crucial to turning around Tesla stock, which is down 30% year-to-date, according to Wedbush.
- Analyst Dan Ives said there will be dark clouds hanging over Tesla if they abandon the Model 2.
- "If robotaxis is viewed as the 'magic model' to replace Model 2 we would view this as a debacle negative for the Tesla story," Ives said.
Tesla stock won't reverse it's massive sell-off until it commits to its original plans to develop a low-cost Model 2 vehicle, according to Wedbush analyst Dan Ives.
Tesla stock is down 30% year-to-date and is down 58% since its record high as concerns grow about weakening demand for its electric vehicles. The company's first-quarter deliveries came in well below expectations, and one analyst estimates that the company has unsold inventory of about 150,000 vehicles.
A recent report from Reuters said that Tesla is ditching plans for a low-cost Model 2 and will instead focus on the development of its Robotaxi platform, stoking concerns among Tesla bulls including Ives.
"If robotaxis is viewed as the 'magic model' to replace Model 2 we would view this as a debacle negative for the Tesla story. It would be a risky gamble if Tesla moved away from the Model 2 and went straight to robotaxis," Ives said in a Friday note.
For his part, Tesla CEO Elon Musk denied the Reuters report, though the company did announce an August 8 event to talk about its robotaxi developments.
Ives concerns on the potential pivot away from a Model 2 is predicated on his estimate that about 60% of Tesla's future growth will from from a low-cost vehicle that costs around $25,000. Meanwhile, Ives doesn't expect a fully autonomous robotaxi to be on the road until 2030, compared to a Model 2 that Ives estimates could arrive by 2026.
"Robotaxi is not the near-term answer to fill this growth gap while Model 2 is and this dynamic must be conveyed to the Street on the conference call April 23," Ives said.
Ultimately, the potential pivot away from a Model 2, which has long been part of Tesla's "Master Plan," would be just another concern for the bulls as the company deals with intense competition from China auto manufacturers and hybrid cars, as well as murmurs of Musk's AI efforts being separate from Tesla.
"With this quarter and unlike other times, Street criticism is warranted as growth has been sluggish and margins showing compression with China a horror show and competition increasing from all angles," Ives said. "For Musk, this is a fork in the road time to get Tesla through this turbulent period otherwise dark days could be ahead."
Wedbush reiterated its "Outperform" rating and $300 price target, representing potential upside of 73% from current levels.