Tesla's massive price cuts in U.S. and Europe send shares lower on demand concerns

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By Senad Karaahmetovic

Electric vehicle (EV) titan Tesla (NASDAQ:TSLA) announced fresh price cuts in the United States and across Europe in a potential bid to stimulate demand.

Tesla Model 3 prices fell between 6% and 14% in the U.S. while the price of the Model Y fell by nearly 20%. In Europe, Tesla cut prices for Model 3 and Model Y in several major markets, including France, Germany, and the U.K.

Tesla’s Model 3 was the best-selling EV in Germany last month with prices now slashed up to 17%, depending on the configuration.

In response to price cuts, Tesla shares are trading about 4% lower in pre-market Friday on concerns the EV titan is experiencing weakening demand. Several analysts slashed their stock targets recently, highlighting a slowdown in demand amid a challenging macro environment.

However, some of these price cuts in the U.S. may help Tesla qualify for more federal EV tax credits. On the other hand, such drastic price cuts may upset its customers who agreed to buy new EVs at a higher price in recent weeks. Similarly, investors are worried that lowered prices may impact Tesla’s margins.

Tesla Germany spokesperson told Reuters that the price cuts are a result of Tesla wanting its cars to be more accessible.

"At the end of a turbulent year with interruptions to the supply chain, we have achieved a partial normalisation of cost inflation, which gives us the confidence to pass this relief onto our customers," a spokesperson said.

Citi analysts lowered their Tesla stock price to $140 per share to reflect lower estimates.

"We now model 2023E vehicle deliveries +40% YoY (vs. +53% prior). Our gross margin bridge reflects incremental margin on higher volume and a modestly lower COGS/unit, offset by lower ASPs and higher D&A. We acknowledge a fair amount of debate and low visibility on the ‘23 gross margin bridge, where we believe an injection of visibility alone could aid sentiment. Our latest Q4E EPS is slightly ahead of consensus but 2023E is modestly below," the analysts wrote in a client note.

Tesla stock price closed at $123.56 yesterday.