Title: Tesla Lowers Prices Amid Disappointing Q3 Delivery Volume, Stock Price Falls
Subtitle: Analysts express concerns about declining demand and negative impact on profits
Date: October 6, 2022
Tesla has announced price reductions for some of its Model 3 and Model Y vehicles in the United States after falling short of market expectations in third-quarter delivery volume. The move comes as Tesla aims to bolster demand and address sluggish market conditions. However, analysts have raised concerns about the potential harm to the company’s profits.
The starting price of the Model 3 standard version has been lowered from $40,240 to $38,990, while the long-range version now starts at $45,990, down from $47,240. The high-performance version, on the other hand, sees a decrease from $5,324 million to $50,990. Similarly, the starting price of the Model Y high-performance version has dropped from $54,490 to $52,490, and the long-range version now begins at $48,490, down from $50,490.
Following the announcement, Tesla’s stock price experienced a decline at the opening of the market on October 6. As of press time, the stock price stood at $254.59, reflecting a 2.1% decrease.
Tesla has been implementing a global price reduction strategy since the end of last year to stimulate demand amidst challenging market conditions and growing competition in the electric vehicle industry.
In its two largest markets, China and the United States, Tesla regularly adjusts its prices. However, the company’s recent delivery figures fell short of analysts’ expectations, with a total of 435,059 vehicles delivered in the third quarter. This represents a decline from the previous quarter and marks Tesla’s first quarter-on-quarter decrease in deliveries since the second quarter of 2022.
The company attributed the decline in deliveries to the temporary closure of some factories for upgrades, as discussed during its last financial report meeting. Tesla CEO Elon Musk remains optimistic about the company’s ability to meet its goal of delivering 1.8 million vehicles by the end of the year, noting that factory closures during the summer accounted for the decline in production.
While Tesla’s stock price has witnessed substantial growth this year and the company’s price-cutting strategy has been successful thus far, analysts believe there are underlying challenges. They argue that the price cut is a last-minute move and that weak demand is the primary reason behind the lower-than-expected delivery volume in the third quarter.
Analysts highlight that Tesla delivered only 4,500 more vehicles than it produced in the third quarter, resulting in a record inventory of 106,000 vehicles as it entered the fourth quarter. This scenario suggests that the company’s struggle lies in sluggish demand. Additionally, if Tesla is to reach its ambitious target of selling 1.8 million vehicles this year, the profit margin from those sales may become negative.
Goldman Sachs previously voiced concerns about Tesla’s profit margins in the face of continuous price cuts. The investment bank adjusted its profit forecast for Tesla in mid-September, questioning whether the volume-driven cost reduction strategy could offset the impact of price cuts on earnings per share. Consequently, analysts revised their earnings per share expectations for Tesla in 2023 and 2024.
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