Tesla Inc. cut prices in its queues in the US and key European markets in its latest effort to boost demand after a series of disappointing deliveries.
The automaker is lowering the cost of its cheapest Model Y by up to 20% and shaving up to $21,000 off the most expensive vehicle in its home market. Tesla also made major cuts in countries including Germany, the UK and France a week after its second cut in China since October.
The drastic changes reflect the conundrum Tesla faces after hitting annual vehicle delivery targets, despite year-end discounts and incentives that CEO Elon Musk has touted in the past. In order to continue to grow and fully utilize the plants it opened or developed last year, Tesla may be forced to compromise the profit margins that Wall Street celebrated when the company limited production.
Tesla stock fell as much as 5.5% as of 4:30 a.m. New York time on Friday, before the start of regular trading. Shares of other automakers include Ford Motor Co and Rivian Automotive Inc. also down.
The changes in the US drop the price of the Model 3 sedan and certain Model Y sport utility vehicles below the cap required to qualify for the $7,500 electric vehicle tax credit.
The Department of the Treasury and Internal Revenue Service released guidelines late last year that angered Musk because the Model Y didn’t weigh enough to be considered an SUV. This means that the vehicle is subject to the $55,000 price cap that applies to sedans, rather than the $80,000 limit for SUVs.
Tesla now notes on its website that a $7,500 federal tax credit that certain customers are currently eligible for will apply to vehicles delivered through March.
While some parts of the new US law came into effect on January 1, the Ministry of Finance is still finalizing the requirements for battery-filling sources that can cut the tax credit of certain eligible EVs in half.
Toni Sacconaghi, a Bernstein analyst who has a sell rating on Tesla shares, wrote last week that the automaker faces “significant demand issues” and that the challenge will remain because its models are too expensive to qualify for tax credits. .
“We believe Tesla will have to reduce its growth targets (and run its factories below capacity) or encourage and potentially increase new price cuts worldwide, pushing the limits,” Sacconaghi wrote in a Jan. 2 report. “We see the demand problem remaining until Tesla can introduce a lower volume offering, which is only in 2025.”
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