Tesla (TSLA) analyst looks into price cuts and effects on EV demand

(Credit: Tesla)

Tesla (NASDAQ:TSLA) has been adjusting the prices of its electric vehicles in recent months, with many resulting in cost reductions. Amidst these adjustments, an analyst has delved into the data to examine how Tesla’s aggressive pricing strategy has affected the demand for its vehicles.

In a note published on Tuesday, Chris McNally from Evercore ISI highlighted that cars are considered elastic goods. The analyst noted that even a reduction of $100 in incentives has the potential to influence the seasonally adjusted annual rate of car sales in the US by about 100,000 vehicles.

That being said, the extent of this elasticity remains to be seen, especially as Tesla currently relies on just two vehicle models for the majority of its sales. A quick glance at the company’s vehicle production and delivery reports confirms this, as the Model 3 sedan and the Model Y crossover account for the vast majority of Tesla’s sales.

“The first price cuts had a significant effect on global demand, with the US being the largest market. However, it is more challenging to observe a clear positive correlation between elasticity and the second round of price cuts in March/April,” the analyst noted.

McNally also expects Tesla shares to face a “negative revision cycle” this year as Wall Street adjusts its volume assumptions for 2024-2025 or revises price and margin assumptions to compensate for volume changes, as reported by MarketWatch.

“The extent to which lower prices can drive volumes, assuming all other factors remain constant, is what our newly calculated elasticity of Tesla’s demand function can help analyze in the coming quarters,” added the analyst.

While Tesla is currently busy developing its next-generation electric vehicle, McNally believes that the impact of this vehicle will not be evident until at least the latter half of 2025. Until then, the analyst noted that the “price vs. volume will be the key stock debate for the next 18 months.”

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Tesla (TSLA) analyst looks into price cuts and effects on EV demand
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