Tesla (NASDAQ: TSLA) price cuts on its electric vehicles have analysts split on whether the move is a way for the company to regain critical market share in various markets, or if its an indication that demand for its cars is slowing down.
Tesla has cut prices on its EVs five times so far in 2023 in the United States. The most recent cuts reduced prices by between 2 and 6 percent.
However, analysts are undecided about what the cuts mean. Of course, it depends on what each analyst feels about the stock, as the price reductions could be argued as a sign of strength or weakness.
Guggenheim Securities analyst Ronald Jewsikow said the firm expects “investors to view price cuts as a negative as it runs counter to TSLA recent commentary (as recently as early March investor day) suggesting strong demand.”
The price cuts are expected to hurt Tesla’s margins, which were among the strongest in the industry. “All of our demand trend work has pointed to slowing demand into March, with wait times flat to negative (globally) across all models and inventory building.”
Jewsikow also mentioned the recent addition of the 4680-equipped Model Y built at Gigafactory Texas as “a negative mix shift for U.S. orders in the near term if consumers’ response to the modestly lower price point is higher than we expect.”
There are two sides to every argument, however, and the automaker’s price cuts could be a sign of Tesla’s “unique characteristics” that will help it resurge its U.S. market share.
“I do think that this strategy of cutting prices gonna lead to a higher sales, and fortunately for them, they do have some unique characteristics that make it so they don’t have to sacrifice too much on profitability,” RBC Capital Markets analyst Tom Narayan said.
Even bullish analysts are seeing the price cuts as “near-term pain, long-term gain.” Dan Ives of Wedbush is one of these analysts, and in an interview with CNBC yesterday, he said the cuts leverage strength against its competition, as its EV scalability is “unmatched.”
$TSLA cuts prices again in the U.S. and announces plans for more investment in #China, at a time of heightened tensions between the two countries. Wedbush’s Dan Ives @Divestech says #Tesla needs to put a ringfence around customers in the EV arms race. @willkoulouris pic.twitter.com/P6Y6cAWE8k
— CNBC’s Street Signs (@StreetSignsCNBC) April 10, 2023
While GM, Ford, and others continue to try and keep pace, Tesla is making moves to stimulate demand, increase sales, and push more cars out the door. Its record delivery count in Q1 shows demand is undoubtedly healthy, but Tesla should be aware of potential hits on the stock price if margins are heavily affected.
Tesla shares are up nearly 2 percent at 1:34 PM on the East Coast.
Disclosure: Joey Klender is a TSLA Shareholder.
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