Tesla's Perplexing Pricing

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


  • 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
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.

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