Tesla's Perplexing Pricing

Feb. 07, 2019 1:04 PM ETTesla, Inc. (TSLA)232 Comments
Numbers Nerd profile picture
Numbers Nerd
73 Followers

Summary

  • Tesla reduced the prices of their cars $1,100.
  • It was the second price drop in the past 45 days.
  • Timing points to a demand issue.

Let me get one thing out in the open from the start, I am long Tesla (NASDAQ:TSLA) both financially and in their mission. I freely admit that I look for the positive spin on news, but I am also a realist. I often get frustrated when Tesla bears come up with contrived theories about news that typically has a simple explanation (although a pro-Tesla explanation), so I try to avoid doing that myself. With that in mind, I believe the recent price drop on the Model 3 signals to a demand issue in the US.

The Facts

  • On January 1st, the federal tax credit for Tesla vehicles dropped by $3,750
  • In response, Tesla reduced the price of its vehicles across the board by $2,000
  • Tesla announced the ending of their referral program, citing the high cost that it added to the Model 3
  • On February 5th, Tesla reduced the price of Model 3s in the US by another $1,100, claiming the difference was the savings from ending the referral program

The Numbers

Around October 19th, Tesla opened up all Model 3 variants to the referral bonuses. Given that many of the orders for cars delivered after October 19th had already been made, I think it is fair to assume 2/3rds of the 63,150 Q4 Model 3 sales were open for referral bonuses. That gives us a ballpark Q4 estimate of the referral impact of 63,150 * 2/3 * $1,100 = $46.3 million.

In another Seeking Alpha article, WY Capital examines the GAAP profit after removing regulatory credit sales and non-recurring items and noted that Q3 had a profit of 122.6 million, while Q4 (with higher sales) had a lower profit of $98.0 million. If we include the $46.3 million in the Q4 number, then the profits look more in line with their respective revenue amounts, as the

This article was written by

Numbers Nerd profile picture
73 Followers
I am a math guy by trade and love diving into projections.  My experience has been in developing models and refining assumptions in the insurance industry, and I have translated that experience into the investing world.  I do not manage any funds other than my own and my parents, but have a solid background in general asset knowledge beyond just basic stocks and bonds.  I focus mainly on the long side and typically look for growth opportunities, the bigger the growth potential, the more I am interested.

Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (232)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.