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By Zaheer Kachwala and Siddarth S
(Reuters) -Tesla shares gained more than 2% on Thursday after CEO Elon Musk vowed to launch long-awaited cheaper models in the first half of 2025 and start testing an autonomous ride-hailing service in June.
The promises helped investors overlook a weak fourth quarter that saw margin shrink and revenue drop below expectations as a result of slow model upgrades and rising competition.
Doubts over Tesla's auto business gained ground after it ended 2024 with its first annual decline in deliveries, despite margin-sapping cheaper financing options and price cuts.
Tesla said on Wednesday it expected the vehicle business to return to growth this year, but did not repeat Musk's prediction from late last year that sales would grow 20% to 30% in 2025.
"The results are emblematic of a company in the transition from an automotive 'pure play' to a highly diversified play on AI and robotics," Morgan Stanley analysts said.
Tesla shares have rallied recently on hopes that U.S. President Donald Trump, whose election campaign Musk had backed with around a quarter-billion dollars in donations, would provide a clearer regulatory path for its robotaxis.
Musk said Tesla would start unsupervised tests of its autonomous ride-hailing service in Austin, Texas. He did not provide details either on how the service would work or his affordable vehicle plans, including pricing.
Tesla was set to add roughly $28 billion to its market value, if gains hold. The stock ended last year with a gain 62.5% and trades at 118 times its 12-month forward earnings estimates, compared with Ford's 6.07, and GM's 4.48.
At least 19 brokerages have raised their target price for the stock, with a median PT of $300 compared with $278 at the end of December.
"Tesla investors are fuelled by optimism around Full Self-Driving and the upcoming affordable model - two key catalysts that could drive Tesla's next leg of growth," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
While Tesla's plan to test its robotaxi is a positive, some analysts questioned the timeline given by Musk due to heavy regulatory scrutiny.
"He (Musk) highlighted improvements in Tesla's software, with planned rollouts in Texas and California, though regulatory barriers in Europe and data restrictions in China continue to slow progress," said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot.
Tesla on Thursday also raised its capital expenditure forecast to exceed $11 billion this year and in the next two fiscal years.
(Reporting by Siddarth S and Zaheer Kachwala in Bengaluru and Danilo Masoni in London; Editing by Amanda Cooper and Arun Koyyur)
