Tesla Stock Gains After-Hours As Wall Street Weighs Cheaper Models Against AI, Margin Outlook
Analysts offered sharply contrasting views on Tesla’s latest strategy, with Wedbush seeing it as the start of an AI-driven revaluation, while others warned that trimmed-down models could harm profitability and fail to boost demand.
Tesla Inc. shares rose nearly 1% in after-hours trading on Tuesday after the company launched lower-priced Model 3 and Y variants. Wedbush reaffirmed its ‘Outperform’ rating and $600 price target, calling the move a step toward an AI-driven valuation, while Deepwater and Future Fund offered sharply contrasting takes.
AI & Autonomy Still The Core Story
Wedbush Securities stated that the new, lower-cost Model 3 and Y trims, priced at approximately $37,000 and $40,000, mark a key step toward restoring a 500,000-unit quarterly delivery pace and addressing affordability after the expiration of U.S. EV tax credits.
The brokerage noted that production of the new models began in North America in June 2025, with market rollout expected in the December quarter. The firm said the updated lineup replaces Tesla’s postponed $25,000 vehicle plan and reflects a focus on simplifying manufacturing and reducing supply-chain complexity.
Although the roughly $5,000 price reduction leaves the vehicles “still relatively high” versus competitors, the firm called the decision “a step in the right direction.”
Wedbush estimated Tesla’s FY2025 revenue at $92.3 billion and FY2026 revenue at $108.1 billion, with EPS expected to climb from $1.68 to $2.80. It highlighted that the lower-cost trims are intended to stabilize volumes following the end of federal EV incentives while preserving margins through manufacturing efficiencies.
The brokerage also spotlighted Tesla’s rollout of Full Self-Driving (FSD) version 14.1, the first major software update in nearly a year, as a pivotal milestone. The update introduces improved parking navigation, smarter lane changing, emergency zone detection, and personalized driving adjustments, powered by a neural network 10 times larger than before. Wedbush said these advances enhance Tesla’s autonomous capabilities in complex conditions, such as navigating detours and debris.
Wedbush believes Tesla is entering the “AI unlock” phase of its valuation cycle, driven by the expansion of FSD, increasing adoption across its installed base, and progress in its autonomous Cybercab project. The firm said it expects Tesla to reach a $2 trillion market capitalization by early 2026 and potentially $3 trillion by year-end as autonomy and robotics scale up.
“The AI valuation will start to get unlocked in the Tesla story,” Wedbush said, adding that while some investors may have hoped for a Roadster update or steeper price cuts, any short-term disappointment “should present a buying opportunity to get into Tesla’s autonomous path forward.”
Smart Timing, But True Prize Lies Ahead
Gene Munster of Deepwater Asset Management said Tesla’s new trims were a well-timed response to the end of EV tax credits, which effectively raised U.S. vehicle prices by about 15%. He estimated that Tesla’s U.S. deliveries surged nearly 30% in September as buyers rushed to purchase before the credit expired, and said the cheaper Model 3 and Y versions should help cushion that demand pullback.
Munster projected that Tesla’s deliveries could rise 16% next year after a 9% decline in 2025, noting that the new price points offset much of the lost incentive value. He added that Tesla’s decision to price the Model Y Standard around $40,000, a 11% cut from its previous version, makes it more competitive in a post-credit market.
However, Munster emphasized that Tesla’s longer-term opportunity lies in developing a truly affordable $30,000 model, which he expects to launch around 2027. He said such a vehicle would be critical for Tesla to win autonomy, as mass-market adoption will depend on bringing Full Self-Driving technology to a larger customer base. “Tesla didn’t waste any time countering the loss of the tax credit,” he said, calling the latest trims “a smart move to keep pressure on competitors” like Ford, Hyundai, and Nissan.
Cannibalization Risk And Repeated Mistakes
Gary Black, managing partner at The Future Fund LLC, took a more cautious view, arguing that Tesla’s new trims are simplified versions of existing models rather than truly new form factors. He said the move risks cannibalizing higher-margin variants and failing to drive incremental demand.
“For $5,000 less, you get lower battery range, less acceleration, cloth seats, no exterior light bars, smaller wheels, and a cheaper sound system,” Black said in a post on X. “The sub-$40K price may get buyers into the stores, but I don’t see these selling.”
Black warned that Tesla investors should remember what happened between 2023 and 2024, when the company cut average selling prices by more than 12% per year but saw deliveries fall by 1%, while the broader EV market grew by 25%.
He argued that Tesla’s strategy of price-driven growth has repeatedly failed because competitors quickly match discounts, erasing any short-term advantage. Black said Tesla’s “brand leverage is still way undeveloped,” comparing it unfavorably to Apple’s use of lower-priced models like the iPhone SE to broaden its customer base.
He added that genuine expansion would require Tesla to enter new categories, such as hatchbacks or the long-rumored “Model 2,” rather than repackaging existing vehicles at lower prices.
On Stocktwits, retail sentiment for Tesla was ‘neutral’ amid ‘high’ message volume.
One bullish user on Stocktwits suggested that with fuel and maintenance savings factored in, owning a Tesla now effectively costs around $25,000, implying there’s little reason to consider other cars.
Another user struck a sharply different tone, arguing that sentiment toward the new Model Y was turning negative. They said the car felt stripped down, pointing to a softer suspension, reduced range, and fewer features such as speakers and lighting, and likened CEO Elon Musk’s approach to “going Scrooge McDuck style into his vault of gold.”
Tesla’s stock has risen 7.2% so far in 2025.
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