Carina Johansen/Getty Images
- Tesla CEO Elon Musk warned of a recession in the company’s fourth-quarter earnings update.
- But investors shouldn’t fret about his outlook, according to The Future Fund co-founder Gary Black.
- Any economic downturn will be shallow because the Federal Reserve can cut interest rates whenever it wants, Black said Thursday.
Elon Musk’s strengths lie in developing electric cars – but investors are unlikely to pay much attention to his recent warning that the US economy could slip into a deep recession this year, according to longtime Tesla bull Gary Black.
“I don’t think investors listen to Elon’s economic forecasts,” the Future Fund managing partner told Yahoo Finance Thursday. “I think he’s viewed as a great engineer, a great product guy, a visionary about climate change and accelerating the world’s transition to a sustainable world – but he’s not an economic forecaster.”
Musk alluded to the idea of a severe recession on Tesla’s fourth-quarter earnings call, which took place after Wednesday’s bell.
He said a downturn could actually help the Tesla’s stock price because it would be disinflationary – helping to reduce the company’s input costs.
But Black doesn’t believe investors will take much notice of Musk’s economic predictions. He said that even if there’s a recession it’s likely to be shallow, because the Federal Reserve has scope to cut interest rates.
The central bank raised the cost of borrowing from near-zero to around 4.5% last year – and many investors think it’ll start slashing at some point in 2023 to support economic growth.
“Most people, including myself, believe if we have a recession, it’s going to be extremely shallow because the Fed can cut rates any time, and they probably will,” Black said. “So I don’t think people are buying into the idea that there’s going to be a recession.”
Tesla stock rallied just under 11% Thursday after the company beat Wall Street’s fourth-quarter earnings targets.
Musk attributed Tesla’s earnings-per-share outperformance to recent US price cuts of between 7% and 20% for some of the company’s flagship vehicles, which has helped to revive previously faltering demand.
And Thursday’s rally demonstrates the price cuts have worked, according to Black.
“The conference call was pretty successful, he said. “Elon got on there and showed a lot of confidence and said the January orders were about twice what production is.”
“And that’s what’s pushing the stock up 10% today was really the outlook on the volume side, which was a result of cutting the price about three weeks ago now,” Black added.
Read more: Elon Musk is gung-ho on Tesla sales hitting 2 million after price cuts, but a Wedbush analyst says it’s having to ‘sacrifice margins for volumes’