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Tesla Cuts Prices, Again

Feb. 19, 2021 8:52 AM ETTesla, Inc. (TSLA)
Ruerd Heeg profile picture
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During the last 4 days the main development for Tesla (TSLA) was price cuts in the US and apparently also in Japan. In particular it reduced the price of certain variants of the model Y and the model 3 in the US. See here. For both models the prices of the standard and the performance variant were reduced. According to the article in Electrec the price reductions were small in the US. However here is information claiming Tesla also reduced lease prices with enormous percentages.

As usually last quarter Tesla did not make a profit on its core operations. Losses from manufacturing were offset by income from regulatory credits. Now Tesla has reduced prices again I expect gross margin to take a hit.

I assume Tesla reduced prices because it did not sell enough cars to make the Fremont factory profitable. I doubt whether Tesla has decreased prices enough to change the tide. It might be a desperate attempt to save the numbers.

Other news

There is a rumor Tesla has problems delivering model Y in China. Based on what this account tweeted during the past 2-3 years I consider the source very reliable.

Bottom line

Tesla has lowered prices many times. Despite repeated price decreases gross margin stayed firm. Obviously that cannot go on indefinitely. Also because of the delivery issues, maybe related to chip scarcity, Tesla may not have a good quarter. That will not be good for the stock. My opinion on the stock is therefore still strong sell.

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Analyst's Disclosure: I am/we are short TSLA.

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