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Since the beginning of the year we have been closely monitoring Tesla's strategy of using price cuts to stoke demand. Through most of 2023, the strategy has worked, but Tesla's most recent round of price cuts, putting their vehicle prices close to those of conventional ICE vehicles, is catching the eyes of not only customers, but company investors.
"At $38,990, the base Model 3 sedan now costs $8,700 less than the average amount paid for a car or truck in the US," Bloomberg pointed out this week. And as we have noted this year, so far the price cuts have been a winning formula for Tesla, allowing the automaker to remain at the tip of the demand spear in a global EV race that is now beyond super-saturated with competition. The latest cuts we detailed less than a week ago:
Model 3 Now $38,990 From $40,240
Model 3 Performance Now $50,990 From $53,240
Model 3 Long Range Price Cut To $45,990 From $47,240
Model Y Long Range Now $48,490 From $50,490
Model Y Performance Now $52,490 From $54,490
Bloomberg notes that the cost of a Model 3, when factoring in a $7,500 Federal Tax Credit, is on a par with that of a 2024 Toyota Corolla.
Some investors love the idea. For example, Sam Korus, an analyst at Ark Investment Management said to Bloomberg this week: “Now the fun part of cost declines ... life after price parity. There is no reason why battery costs or EVs should halt their price declines at price parity. The product can continue to cost less, or it continues to sit in the same price segment and performance improves.”
But other investors aren't sold on the idea of huge price slashing. “Amazes me that Tesla uber-bulls [are] trying to spin last night’s price cuts as positive. We would prefer Tesla use long-term advertising investment to educate [internal combustion engine] owners to go EV rather than price cuts," said investor Gary Black of The Future Fund.
Tesla uber-bull and genial human haircut Ross Gerber also commented to Bloomberg: “Sadly Tesla continues to have to cut prices to sell cars. Piss off core demo and kill margins to unload inventory. The master plan!”
Recall, the latest round of price cuts came just days after Tesla missed its modest Q3 delivery estimates. In Q3, the company delivered 435,059 vehicles and produced 430,488 vehicles, missing consensus delivery estimates of 456,722. The quarter marked the first sequential drop in total deliveries since Q2 2022. Prior to that, the last sequential drop in total deliveries occurred in early 2020, as the chart below shows.
The company acknowledged the miss and chalked it up to downtime, stating in its press release the "sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call."
CEO Elon Musk had said on the company's last conference call that it would “continue to target 1.8 million vehicle deliveries this year.” However, he also warned about production numbers dwindling due to "summer shutdowns for a lot of factory upgrades.”
Analyst Gordon Johnson of GLJ Research called the price cuts a "Midnight Price Cut Massacre" in a note out last week morning, and suggested that the Q3 miss was not due to line upgrades, but rather due to lack of demand.
"Tesla is already resorting to margin-destroying price cuts just five days into the fourth quarter of 2023," he wrote. "Despite selling only 4,500 more cars than it produced in the third quarter and entering the fourth with a record inventory of 106,000 cars, it's clear that Tesla's issues rest mainly with lackluster demand."
"This means to hit its goal of 1.8mn cars produced in 2023, Tesla may have to sell those cars at negative net income margins," he continued.
It's safe to say that the company's Q3 earnings report will be anxiously awaited...
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