Could a hatchback drive growth in the Tesla share price?

The Tesla share price [TSLA] has been stuck in the slow lane. Since peaking at a 52-week high of $900.40 on 25 January, shares in the electric vehicle (EV) maker have struggled to pick up the pace again.

The Tesla share price fell into a downward trend in February, declining 14.8% throughout the month, and continued to fall before crashing to a low of $563 on 8 March. And while Tesla’s share price did rebound, gaining 6.2% throughout April, the stock fell back to a low of $563.46 at the close of 19 May. 

Since then, Tesla’s share price has bounced back, climbing 8.7% throughout June. However, the stock was still down 3.7% in the first half of the year at $679.70 on 30 June. 

  

As of the 9 July close, the Tesla share price is down 10% in the year to date, underperforming the S&P 500 and Autonomous & Electric Vehicles ETF [DRIV], which both gained around 15% in the same period.

Can a long-mooted rumour about an entry-level EV hatchback inject some much-needed momentum back into the Tesla share price?

 

Entry-level EV hatchback

Tesla has long positioned itself as a premium car company. Over the years, it has broadened its range to include sedans, multi-purpose vehicles, sport utility vehicles, sports cars and even a pickup truck — and while the Model 3 remains its cheapest EV, it could be looking to expand.

Elon Musk, CEO of Tesla, touted the idea of a more affordable car at the Tesla Battery Day on 22 September 2020. In order to accelerate the transition to sustainable energy, he said that Tesla needed to produce more affordable EVs.

“We need to make more affordable cars. I think one of the things that troubles me the most is that we don’t yet have a truly affordable car, and that is something that we will make in the future,” Musk said during the event, adding that the cost of batteries needed to come down to achieve that.

“We need to make more affordable cars. I think one of the things that troubles me the most is that we don’t yet have a truly affordable car, and that is something that we will make in the future” - Elon Musk, CEO of Tesla

 

At the time, he said that the company could produce an EV that’s also fully autonomous by 2023 for a price tag of $25,000.

While no official announcement has yet been made, rumours have circled in the industry that the new model could be an adapted hatchback version of the Model 3, according to the automotive publication Autocar.

Musk had reportedly hinted at producing a hatchback in Germany in early 2020, saying that it “would make sense to do a compact car, perhaps a hatchback,” according to Bloomberg.

 

A crowded lane

The EV market has seen intensifying competition in recent years, but Tesla still has a firm hold. Data from Statista shows that it had a leading global market share in plug-in EVs of 16% in 2020, followed by Volkswagen [VOW.DE] at 13%. 

The company could close the gap further with the release of an affordable EV hatchback, which would rival leading models in the segment, such as Volkswagen’s ID.3, Nissan’s [7201.T] Leaf and Kia’s [0270.KS] e-Niro.

Indeed, Tesla has proved that it can weather industry headwinds. Despite global supply chain and logistics challenges, the company delivered and produced more than 200,000 vehicles in the second quarter.

  

However, Patrick Hummel, an analyst at UBS, expects that momentum to slow down in the quarters ahead. He believes that growth will favour Tesla “competitors with a busier launch pipeline,” according to a note to clients seen by MarketWatch.

Hummel cut his target for the Tesla share price from $730 to $660, giving the stock a neutral rating. Meanwhile, he had a neutral rating on Ford [F] and a buy rating for General Motors [GM].

The Tesla share price had a consensus hold rating among 23 analysts polled by TipRanks, with an average 12-month price target of $653.95, which would represent just a 0.2% upside from its 8 July closing price.