Premium products are supposed to carry premium prices. For all of Tesla Inc.’s (NASDAQ: TSLA) history, it has been able to sell high-priced cars. The exception is its Model 3, which is priced to draw middle-income customers. Tesla cutting prices is a sign that it is like any other car brand hit hard by the COVID-19 pandemic.
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According to several press reports, the price of Tesla models was cut by as much as $5,000. Industry website Electrek said of the Tesla price cuts:
For Model 3, its cheapest and most popular car, it results in a $2,000 price cut across all powertrain options.
It now starts at $37,990 instead of $39,990 for the Model 3 Standard Range Plus. …
Model S, Tesla’s flagship sedan, has got an even greater price cut.
The Model S Long Range Plus now starts at just $74,990 – a $5,000 price reduction. …
Same goes for the Model X.
Both versions of the luxury electric SUV have received $5,000 price cut.
While the cuts may help demand, they put Tesla’s already shaky financials under new pressure.
Tesla posted revenue of $7.4 billion in the fourth quarter of 2020, which was up only 2% from the previous year. The company had net income of $105 million, down 25% year over year for the same quarter. Tesla’s margins are razor-thin.
Describing the fourth-quarter results, management made a comment that is no longer true;
None of this would be possible without strong demand for our products. For most of 2019, nearly all orders came from new buyers that did not hold a prior reservation, demonstrating significant reach beyond those who showed early interest.
It is too early to say how long car demand in both the United States and other large markets like China will stay low. However, for the time being, Tesla is like any other manufacturer. It is fishing for new business, and its primary tactic is lower prices.
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