Tesla Inc. (NASDAQ: TSLA) has cut car prices in Europe, as in the United States and China. The electric vehicle (EV) maker reduced the prices of its Model Y by 8% and the rear-wheel version by about 4%. Price cuts varied slightly by country. Reuters pointed out that Volkswagen is now the largest EV company in Europe, having pushed Tesla out of the top spot.
Investors’ primary concern about Tesla is that price cuts have continued for almost a year. This will hurt Tesla’s margins and bleed value from the company. It has been widely argued that Tesla has dropped prices to keep or increase market share. It has a similar market share problem in China, where its sales have fallen behind local car company BYD. (Here are five reasons to avoid Tesla Cybertruck no matter what.)
Tesla produced over 1.8 million vehicles last year, up 35%. However, every major car company globally has entered the EV market, and Tesla has become their primary target. Tesla’s success drove a 100% increase in its stock value, which took its market cap to $750 billion, making it the ninth most valuable company traded on any U.S. exchange. Its market cap is over 15 times Ford’s. The stock has trailed off about 10% this year.
Tesla has continued to grow, but not as fast as it once did. In the most recently reported quarter, revenue was $23.4 billion, up 9% year over year. Net income fell 44% on the same basis to $1.9 billion. This may already be a sign that price cuts have started to eat into margins.
Will the Tesla price cut strategy work? It certainly makes owning one more attractive. However, can the company afford it? And will shareholders support it?
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