{"id":40309,"date":"2023-01-13T12:03:46","date_gmt":"2023-01-13T17:03:46","guid":{"rendered":"http:\/\/autosector.com\/?p=40309"},"modified":"2023-01-13T12:03:46","modified_gmt":"2023-01-13T17:03:46","slug":"tesla-price-cut-timing-analysis","status":"publish","type":"post","link":"http:\/\/autosector.com\/?p=40309","title":{"rendered":"Tesla price cuts are the ‘right medicine at the right time,’ analyst says"},"content":{"rendered":"

With inventory reportedly piling up, Tesla<\/a> analysts and investors predicted price cuts were coming \u2014 and they were right<\/a>.<\/p>\n

In addition to cutting prices for the Model 3<\/a> and Model Y<\/a> in several European countries, Tesla cut prices for those models in a big way in the U.S., likely in the name of boosting demand and to bring these cars under the price caps for the Inflation Reduction Act\u2019s EV tax credit.<\/p>\n

Wedbush analyst Dan Ives said the the cuts are the \u201cright medicine at the right time.\u201d<\/p>\n

In a note to clients today, Ives argued that lowering prices was the correct strategic move as demand may be waning and competition is heating up.<\/p>\n

Starting with the Model 3, the RWD version goes from $46,990 to $43,990, a 6.4% drop. Even bigger, the Model 3 Performance goes from $62,990 to $53,990, representing a 14.3% price cut. Note that the IRA tax credit maximum price for cars like the Model 3 is $55,000.<\/p>\n

For the popular Model Y SUV, even bigger price cuts have arrived. The Model Y Long Range goes from $65,990 to $52,990, a nearly 20% drop. The Model Y Performance goes from $69,900 to $56,990, an almost a 19% drop. Note that the Model Y in 5 seat configuration has the same $55,000 price cap.<\/p>\n

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New Tesla Model Y pricing (tesla.com)<\/em><\/span><\/p>\n

The 7 seat version of the Model Y, which had qualified for the $80,000 price cap on EVs, now rises in price by $1,000.<\/p>\n

While these prices are likely to boost volumes in Q1 tremendously, and bring more buyers from other EV brands back to Tesla, bigger concerns remain.<\/p>\n

The IRS\u2019s new guidance on battery<\/a> components and assembly are coming in March, and will likely cut the $7,500 tax credit by some amount as automakers scramble to fulfill those requirements. This would then make the Model 3 and Model Y, as well as other competitors, more expensive, thus pulling forward demand further in Q1.<\/p>\n

An even bigger concern is margin compression. Cutting prices from 6% all the way to nearly 20% is cutting deep into Tesla\u2019s profit margins, which prior to these cuts was the envy of the automotive world (Tesla\u2019s automotive gross margin was 27.9% in Q3<\/a> 2022, the latest quarter).<\/p>\n

While the stock reaction today is reflecting that margin impact, Ives said it\u2019s the right move, long term.<\/p>\n

\u201cTesla now has global scale (Austin, Berlin, further China<\/a> build-out) it did not have a few years ago and has margin flexibility to make aggressive moves like this to gain further market share in this EV arms race,\u201d he writes.<\/p>\n

Ives says the price cuts will spur demand by 12-14% globally in 2023, as Tesla and Musk go on the \u201coffensive\u201d in a softening backdrop.<\/p>\n

\u201cThis is a clear shot across the bow at European automakers and U.S. stalwarts (GM<\/a> and Ford<\/a>) that Tesla is not going to play nice in the sandbox with an EV price war now underway,\u201d Ives said, as he maintains his outperform rating and $175 price target.<\/p>\n

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on\u00a0Twitter<\/a>\u00a0and on\u00a0Instagram<\/a>.<\/em><\/p>\n

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