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Tesla rating of Outperform reiterated as Baird says cost reductions are to be expected

The electric-car company said it will cut 7% of its workforce as part of an effort to manage costs as it introduces lower-priced versions of the Model 3
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Baird analysts say Tesla’s tone may have been overly negative

Tesla Inc (NASDAQ:TSLA) saw its Outperform rating from Baird reiterated as analysts said the 7% cut in the electric-car company’s workforce is “to be expected” as it introduces lower-priced versions of the Model 3.

In an email to employees and a subsequent blog post, CEO Elon Musk cited the need to introduce less expensive Model 3s in all markets before the next US tax credit reduction on July 1. While Tesla reaffirmed in the blog post prior guidance of profitability in the fourth quarter, it said quarterly profits would be lower sequentially.

Shares of Tesla dropped $6.80 to $323.69 in Friday’s Nasdaq trading.

READ: Tesla shares higher as Oracle boss Larry Ellison discloses $1B stake in electric car maker

“While headlines will likely pressure shares, we believe cost management is important to introducing the lower-priced Model 3 and an important earnings driver as Tesla transitions to its next phase of growth,” wrote Baird's Ben Kallo in a research note. “Cost reductions are to be expected and important as the company works to expand margins and lower average selling prices on the Model 3.”

Kallo added that the tone of Tesla’s statements may have been “overly negative” in setting the stage for the workforce reductions rather than reassuring investors.

Earlier this month, Tesla rallied after Oracle Corp. (NASDAQ:ORCL) co-founder Larry Ellison disclosed that he had a $1 billion stake in the electric-car maker.

Contact Dennis Fitzgerald at [email protected]

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