Tesla (TSLA) Cuts Vehicle Prices To Drive Demand

Tesla (TSLA) is slashing the price of some of its vehicles sold in the US to make them eligible for a $7,500 US government tax credit.

The cost of a baseline Model Y was cut by nearly 20% to $52,990, which puts the vehicle below a $55,000 cap that allows buyers to use the EV tax benefit. The company also slashed the price of the high-performance version of its Model 3, which now costs $53,990. 

TSLA – Weekly Chart

TSLA - Weekly Chart

The price of Tesla stock has seen a slight bounce but trades below the key $130 level. That could prove to be resistance, and there is a chance of a further drop in TSLA.

Wedbush Securities analyst Dan Ives thinks it is the right strategy for Tesla to tackle falling demand.

“Tesla now has global scale (Austin, Berlin, further China build-out) it did not have a few years ago and has margin flexibility to make aggressive moves like this to gain further market share in this EV arms race,” Ives said.

Tesla fell on the news but has also affected the broader EV market, with automakers falling on margin concerns. Morgan Stanley analyst Adam Jonas told clients that the EV sector is now in a “race to the bottom.”

“As EVs resume a deflationary path, investors should expect the industry’s price leader to continue to offer a better product at a lower price,” Jonas wrote. “Tesla is in a position to drive industry EV prices significantly lower.”

Some analysts took a negative stance on the news, with Guggenheim Securities downgrading the stock to Sell from Neutral on Friday.

“Overall, heading into a challenging backdrop in FY23, we believe TSLA had to decide whether to sacrifice volume growth or gross margins, and based on pricing actions, the answer appears to be gross margins,”

“This creates a difficult narrative for a stock still trading at ~30x our FY23 estimates, which we now forecast to grow at just a ~10% CAGR over the next 3 years. Finally, TSLA pricing actions taken yesterday are a negative for all.”

Tesla is also facing an angry backlash from customers who recently purchased a vehicle.

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