Al Root

Tesla is updating its most popular vehicle. It's a good thing for growth, but it isn't enough to get investors to where they want to go.

The electric-vehicle maker launched an updated version of its Model Y crossover vehicle in China. "Looks very nice," said Future Fund Active ETF co-founder and Tesla shareholder Gary Black.

The front includes a thin strip of lights, like those on a Cybertruck. "The vehicle has been redesigned to maximize efficiency and use each degree of electricity more effectively," reads Tesla's China website.

While updates and redesigned models are a common way for car companies to boost sales, they are the bare minimum auto makers need to do to maintain their brands and market share. They don't always lead to big sales gains.

Tesla launched an updated version of its Model 3 sedan in the U.S. in e arly 2024. That didn't arrest sales declines. Through September, Tesla sold about 132,000 Model 3 sedans in the U.S. last year, down about 21% year over year.

The Model 3 underperformed the overall EV market by about 30 percentage points. That is actually better than the performance in 2023. Model 3 sales grew 4% year over year, but the U.S. EV market grew 46%, for an underperformance of roughly 42 percentage points.

All that means the update to the Model 3 helped, but wasn't a magic bullet.

In 2024, Tesla's overall sales were down about 5% year over year through September. Model Y sales dropped 4%, but Cybertruck sales helped growth. Tesla sold about 28,000 Cybertrucks to Americans in the first nine months of the year.

As for 2025, investors are looking for Tesla to grow EV volumes by 20% to 30%. That is the goal CEO Elon Musk set on his company's third-quarter earnings conference call. That means about 2.3 million vehicles, up from about 1.8 million delivered in 2024.

An updated version of the Y, one of the best-selling cars on the planet, will help. But the Y alone won't get Tesla to its growth goals. The company is also expected to launch a lower-priced vehicle in early 2025. It should start at or below $30,000 and open up more of the car market to the EV maker.

Investors shouldn't forget that Tesla is no longer all about cars. Investors are most optimistic about artificial intelligence. Tesla plans to launch an AI-trained robotaxi service in late 2025. Coming into Friday trading, Tesla stock was up about 65% since the company's Oct. 10 robotaxi event, adding some $550 billion in market value.

Tesla stock was down 0.9% in premarket trading at $391.43, while futures on the S&P 500 and Dow Jones Industrial Average were down 1.1% and 1%, respectively. Futures fell after labor market data for December was better than expected, making it a little less likely the Federal Reserve will cut interest rates rapidly.

Write to Al Root at allen.root@dowjones.com

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January 10, 2025 09:16 ET (14:16 GMT)

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