Even analysts in disagreement about the stock see the company continuing to mark down the cost of its vehicles.
(Bloomberg) — One thinks Tesla’s stock is a buy and headed back to $300; the other believes it’s a sell and will fall to $150.
But Piper Sandler’s Alexander Potter, Bernstein’s Toni Sacconaghi and analysts who are more neutral on Tesla shares agree on this: The company’s electric vehicles are only going to get cheaper.
That was the through line in reactions to Tesla’s moves last week — made late Thursday evening, after many signed off for the Good Friday holiday — to cut prices across its US lineup again. With the introduction of a new $49,990 base version, the Model Y can now be had for 24% less than what the least-expensive iteration of the SUV cost early this year. The company also has marked down its oldest cars by as much as $34,000.
“We think investors should expect relentless price cuts to continue, as Tesla moves to expedite the demise of gasoline vehicles,” Potter wrote in an April 10 report. “While obviously a headwind for margins, we think price cuts are more problematic for peers than they are for Tesla, given industry-wide affordability concerns and Tesla’s superior cost structure.”
Sacconaghi was less sanguine about the carmaker compromising its profitability.
“Make no mistake — the price cuts reflect Tesla’s need to stimulate demand and are an explicit trade-off of margins for volume,” Bernstein’s technology analyst wrote. “While many investors have been hopeful that Q1 margins might be bottom, we don’t believe that will necessarily be the case, particularly given our belief that further cuts are likely.”
It didn’t take long for analysts’ predictions of more price cuts to prove prescient. On Wednesday, the Hong Kong Economic Times reported that Tesla plans to cut prices for most versions of its Model 3 and Y vehicles sold in the territory by as much as 15%.
Lost in the debate among market prognosticators over whether Tesla is on offense or defense is what’s going through the heads of consumers who’ve been contemplating buying a car from the company. How many will hold off after the events of the last few months, figuring that they’ll be better off waiting for a sweeter deal?
Elon Musk has made no promises Tesla is done cutting. To the contrary, he’s alluded to the company being limited in how many cars it can sell at the prices it’s been charging.
“There is plenty of demand for our products,” Musk tweeted last week. “But if the price is more money than people have, that demand is irrelevant.”
This was a familiar refrain from the chief executive officer, whose stated mission is to accelerate the transition to sustainable energy. There’s a perfectly reasonable case to make that speeding up the shift to EVs is difficult when your vehicles cost as much as Teslas still do.
But while Musk described his critics as out of touch, his comments amount to an acknowledgement that supply-demand dynamics are no longer in Tesla’s favor the way they were the last several years. The company appears to be succumbing to the same pressures the rest of the industry is to dial prices back as supply-chain constraints ease.
Cox Automotive said Tuesday that new vehicles are now selling for less than manufacturers’ suggested retail prices again, after shortages of chips and other issues turned the market upside down.
Tesla delivered more than 422,000 cars in the first quarter, but produced over 440,000. That mismatch — one that it again blamed on cars being in transit at the end of the quarter — will put Musk back in the position of discussing demand when the company reports quarterly earnings one week from today.
“Improving affordability is necessary to become a multimillion vehicle producer,” Tesla said in its last shareholder deck in January. “Our relentless cost control and cost innovation is why we believe that no other OEM is better equipped to navigate through 2023, and ultimately succeed in the long run, than we are.”
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