Price Frenzy – Tesla’s Global Price Cuts
If there’s any time for Tesla investors to be worried about Elon Musk’s priorities, it must be now. Following a year where Tesla’s share price has fallen by 65 percent and Elon Musk lost $182 billion in net worth, the company is facing what looks to be its biggest roadblock in the rapid-growing electric vehicle industry.
Just a few days ago, Tesla announced that they would be slashing the price of their cars from 1 to 20 percent depending on your location in the world, a troubling move that paints the future not only for the business but for the industry as a whole. In the United States and Europe, prices have been cut by 20 percent for the Model 3 and Model Y, which are some of their best-sellers. This decision comes because of lower demand for two reasons, and two inevitable ones at that. First is the current economic environment, which is unfavorable for most companies in the economy. Elon Musk said that the high-interest environment has caused vehicle demand to fall due to the borrowing costs involved with a car purchase, and Tesla’s high-growth nature is not compatible with rate hikes. Musk has been outspoken about wanting the Fed to cut rates, but that simply isn’t going to happen. Second, and most importantly, is the rise of other EV companies in the industry which is reducing demand for Tesla vehicles. The market share of competitors is slowly increasing, and that comes with a growing threat. This is a move generally taken by large auto manufacturers to protect their market share, but it comes as a surprise as we’ve never seen Tesla play defense before. It’ll likely create a price war in the industry, forcing others like GM to reduce their prices to compete. This move by Tesla comes as new tax credit rules roll in so more Tesla models are now included, which could lead to more demand itself.
The next few years will define whether Tesla continues to have its hold on the industry, or if competitors start to overtake them especially as the favorability of the company has decreased in the last year. Most importantly, it’ll boil down to Elon Musk’s decisions, regardless of whether it’s outside the company or for the company itself.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
