Tesla price cuts ‘right drug at right time’, analyst says

With inventories seemingly piling up, Tesla analysts and investors predicted price drops were coming — and they were right.

In addition to slashing Model 3 and Model Y prices in several European countries, Tesla has dramatically reduced prices for these models in the United States, likely in the name of stimulating demand and to bring these cars under the price caps. price for inflation. Reduction Act EV tax credit.

Wedbush analyst Dan Ives said the cuts are the “right medicine at the right time”.

In a note to customers today, Ives argued that lowering prices was the right strategic move because demand could decline and competition could intensify.

Starting with Model 3, the RWD trim drops from $46,990 to $43,990, a 6.4% drop. Even bigger, the Model 3 Performance drops from $62,990 to $53,990, which represents a price drop of 14.3%. Note that the maximum IRA tax credit price for cars like the Model 3 is $55,000.

For the popular Model Y SUV, even bigger price cuts have arrived. The Model Y Long Range drops from $65,990 to $52,990, down nearly 20%. The Model Y Performance drops from $69,900 to $56,990, down nearly 19%. Note that the Model Y in 5-seat configuration has the same price cap of $55,000.

New Tesla Model Y prices (tesla.com)

New Tesla Model Y prices (tesla.com)

The 7-seater version of the Model Y, which had qualified for the $80,000 price cap on EVs, is now up $1,000.

While these prices are likely to significantly boost volumes in the first quarter and draw more buyers from other EV brands back to Tesla, bigger concerns remain.

New IRS guidelines on battery components and assembly arrive in March and will likely reduce the $7,500 tax credit by some amount as automakers work to meet those requirements. This would then make the Model 3 and Model Y, as well as other competitors, more expensive, further pushing up demand in the first quarter.

An even bigger concern is margin compression. Cutting prices from 6% to almost 20% is deeply cutting Tesla’s profit margins, which before these cuts were the envy of the automotive world (Tesla’s automotive gross margin was 27.9% in Q3 2022, the last trimestre).

While the reaction in equities today reflects that impact on margins, Ives said it was the right long-term move.

“Tesla now has a global scale (Austin, Berlin, more building in China) that it didn’t have a few years ago and has the leeway to take aggressive steps like this to gain more market share in this arms race for electric vehicles,” he wrote.

Ives says price cuts will boost demand by 12-14% globally in 2023, as Tesla and Musk go “on the offensive” amid a downturn.

“It’s a clear blow to European automakers and US stalwarts (GM and Ford) that Tesla won’t play well in the sandbox with an ongoing electric vehicle price war,” Ives said, as ‘ it maintains its Outperform Rating and Target Price of $175.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on instagram.

Click here for the latest stock market trends from the Yahoo Finance platform

Click here for the latest stock market news and in-depth analysis, including events moving stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app to Apple or android

Follow Yahoo Finance on Twitter, Facebook, instagram, Flipboard, LinkedInand Youtube

Leave a Comment