Musk’s ‘razor-and-blade’ strategy could endanger Tesla: analyst -…

Musk’s ‘razor-and-blade’ strategy could endanger Tesla: analyst -…

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Tesla, Inc. TSLA The receipts are now in the rearview mirror. CEO Elon Musk’s However, comments on the earnings call are likely to have a profound impact on how the electric vehicle maker does business going forward.

Rethinking required: Musk said Tesla could sell vehicles for no profit because of the opportunity it has to make huge savings in the future through autonomous software.

End of Approach a “Razor and Blade” business model, Managing Partner of Deepwater Asset Management Gene Munster said investors may need to reconsider the Tesla investment case.

A razor and business model is a strategy to sell a product at dirt cheap prices or for free in order to increase sales of a complementary product or consumable.

The idea is to sell the hardware, primarily the cars, at no profit so they can sell the fully self-driving software at such a high margin that it increases a car’s overall profitability, the fund manager said.

Contrary to Musk’s view, Tesla’s FSD will be available by the end of the year, Munster sees broader availability in three to five years. That’s because of its track record on the topic and regulatory concerns about widespread deployment, he said.

With Tesla planning to invest between $150 billion and $175 billion over the next decade, the company needs to maintain operating margins of more than 15% and also grow sales, the tech expert said.

“Cutting near-term profits would jeopardize the company’s long-term goals,” he added. “In the end, I believe the company will find a balance between margins and growth.”

See also: Everything you need to know about Tesla stock

Core metric disappointed: Munster pointed out that auto gross margin excluding regulatory credits was 19%, compared to expectations of 20%. This key metric has fallen short of expectations for the second straight quarter, he noted.

CFO Zach Kirkhorn did not provide guidance for the June quarter metric, citing factors beyond the company’s control such as:

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