Tesla Inc (NASDAQ:TSLA) shares fell more than 6% in pre-market trading on news that the electric vehicle maker has slashed the price of its Model 3, Model Y and various performance models by as much as 20% in the US and Europe.
This comes after recent price cuts in other markets, including China, Japan and South Korea, as Tesla pursues lower prices to drive demand with a recession on the horizon.
CMC Markets UK chief market analyst Michael Hewson said with increased competition to come from bigger automakers, Tesla’s share price could decline further in the next 12 months.
READ: Tesla chops prices in the US and Europe to drive demand
He said Tesla would need to continue to perform when it comes to deliveries and margins if it is to justify its current valuation.
“The main automakers, the likes of Toyota, Volkswagen and Ford are now entering the fray with respect to electric vehicles, and with their greater resources and dealer networks they could well start to eat Tesla’s lunch,” Hewson said.
“Early mover advantage has certainly favoured Musk and the Tesla brand, the main automakers still sell millions of more products than Tesla does, albeit not of the EV variety, but that will still help when it comes to the transition process, as they merely need to retool existing capacity, as opposed to building new capacity.”
Price cuts ‘the right strategic poker move,’ analysts say
Wedbush analysts said it was no secret that demand for Tesla was starting to see some cracks in the global slowdown for 2023, with price cuts in China over the last week now being followed by eye-popping US and Europe reductions.
“While the initial reaction to these cuts will naturally be negative on the Street at first, we believe this was the right strategic poker move by Musk & Co at the right time,” the analyst wrote in a note to clients.
They noted that Tesla, with its Austin, Berlin and further China build-out, has a global scale it did not have a few years ago and the margin flexibility to make aggressive moves like this to gain further market share in the EV arms race.
“We believe all together these price cuts could spur demand/deliveries by 12% to 15% globally in 2023 and shows Tesla and Musk are going on the ‘offensive’ to spur demand in a softening backdrop,” the analysts wrote.
“This is a clear shot across the bow at European automakers and US stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway.”
Wedbush’s analysts maintained their ‘Outperform’ rating on the stock with a price target of US$175.
They added that they looked forward to hearing more when the company reports its 4Q results and 2023 guidance on January 25.
Tesla shares had shed 6.1%, trading at about US$115.98 before the bell on Friday.
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