There are several ways to look at Tesla’s deep price cuts in the US and Europe, which came on the heels of two rounds of reductions in the span of 10 weeks in China.
For the glass-half-empty crowd, it’s clear that the carmaker was struggling to drum up orders. The company produced over 34,000 more vehicles than it delivered in the fourth quarter — not a catastrophic difference, but part of an un-Tesla-like trend. After all, Chief Executive Officer Elon Musk told investors in October that the company expected to sell every car it could make, “for as far in the future as we can see.”
“Tesla’s recent price cuts were in response to a demand problem,” Toni Sacconaghi, a Bernstein analyst with the equivalent of a sell rating on the stock, wrote to clients Tuesday. “While we (and many investors) had expected price cuts, they were bigger and came earlier than we expected.”
For the glass-half-full contingent, Musk just started a pricing war that Tesla stands a strong chance of winning, even if emerging unscathed is out of the question.
There’s no debating that slashing 20% off the cost of the Model Y and making performance versions of the Model S and X roughly $20,000 cheaper will pressure profitability. But Tesla is soundly out-earning other EV companies, and with the exception of China’s BYD, no automaker is anywhere close to producing as many electric cars.
“Tesla has higher margins than other OEMs including GM and Ford, and cushion to lower prices even further,” John Murphy, a Bank of America analyst with the equivalent of a hold rating on the EV maker’s stock, said Tuesday. “Most OEMS are currently losing money on EVs, and these price cuts are likely to make business even more difficult, just as they are attempting to ramp production of EV offerings. OEMs will have to reevaluate investments and whether they generate sufficient returns should EV pricing prove less favorable.”
