The Tesla (NASDAQ: TSLA) share price has fallen after comments by CEO Elon Musk raised doubts about the company’s recent 100,000 car deal with Hertz. In a tweet on 2 November, Musk said, “no contract has been signed yet”.
Tesla’s market cap rose by 25% to hit $1trn for the first time last week, after the electric car group said car rental group Hertz had ordered 100,000 Tesla Model 3 cars. However, the stock has pulled back since Musk’s tweet hit the wires. Should investors be worried?
Musk says Hertz has “zero effect“
Hertz has told the BBC that Tesla deliveries have already started, but the rental company refused to confirm whether a contract had been signed.
In his tweet, Musk said, “Tesla has far more demand than production”. As a result, he says the company will only sell cars to Hertz “for the same margin as to consumers”. This is unusual. Car hire companies normally buy vehicles at a big discount to list price, in recognition of the volume they bring.
However, the combination of strong demand and the global chip shortage means that Tesla can already sell every car it makes. According to Musk, the “Hertz deal has zero effect on our economics”.
What’s really happening? Tesla shares have fallen by around 3% from last week’s all-time high. Hertz says it’s buying Tesla cars.
Brokers expect Tesla to report earnings of $6.05 per share for 2021, rising to $7.92 per share in 2022. That values the stock on a 2021 price-to-earnings multiple of 200, falling to a P/E of 150 for 2022.