Tesla has cut prices six times this year, and Chief Executive Elon Musk has suggested more such moves in the future.
Shares of Tesla fell nearly 10% on Thursday after Chief Executive Elon Musk said the electric carmaker would keep cutting prices to boost demand even after profit margins were hammered.
The stock was trading at $163, dragging down other automakers. At least 15 analysts lowered their target prices for Tesla, which could see its market value drop by $50 billion to about $517 billion if losses continue. That would make Tesla worth less than Meta Platforms Inc for the first time since 2021.
“Tesla continues to prioritize units over near-term profits in the face of a volatile macroeconomic backdrop and weak demand,” said analysts at Canaccord Genuity.
Tesla’s gross profit margin fell to its lowest level in more than two years in the first quarter, below market expectations, after the company launched a global price war in January to defend its U.S. dominance and move into other markets. The second largest market is China. market.
Tesla’s gross margin on vehicles, which excludes regulatory credit and leases, was 18.3%, below the 20%-plus target Tesla Chief Financial Officer Zachary Kirkhorn set in January. A higher gross margin means the company retains more capital, which can then be used to cover other costs or pay down debt.
Tesla has cut prices six times this year, and Musk has suggested more such moves in the future, saying the company will prioritize sales growth over profits amid a weakening economy.
“We believe that driving higher volumes and a larger fleet is the right thing to do, versus lower volumes and higher margins,” he said.
Investors feared selling European automakers to the U.S. would sacrifice margins to maintain share in a slowing market.
“In the long run, we think this (Tesla’s price cuts) is the right strategy and take advantage of their cost leadership. However, it’s not without pain as we now think margins will shrink before they get better. worse,” RBC analyst Tom Narayan said.
Shares of U.S. automakers ranging from Ford Motor Co to startups such as Lucid Group Inc fell between 3.3 percent and 4.4 percent.
Shares in France-based Renault fell 7.6 percent, while Germany’s Volkswagen AG fell 3.5 percent after its chief financial officer said the company would not slash prices on electric vehicles amid Tesla’s “downward spiral.”
