July 6, 2020, 12:57

Tesla Slashes US Prices on Vehicles as Demand, Share Price Falter

Tesla Slashes US Prices on Vehicles as Demand, Share Price Falter

The decision to cut prices sent the company’s shares value even lower than recent reports of a huge, unliquidated US inventory.

Tesla Inc. has unexpectedly announced a $2,000 price cut on all of its vehicles, amid a cut to the US federal tax credit for electric car buyers and reports of thousands of cars still in the company’s US inventory.

According to the 2017 tax overhaul, electric car buyers receive a $7,500 federal tax credit, but that only applies for the first 200,000 electric cars a company sells. Once a company reaches this milestone, this tax credit reduces by half every six months, and later is phased out entirely.

Analysts cited by Reuters speculate that Tesla’s decision to cut prices is aimed at mitigating the loss of the credit and maintaining the true price tag of the vehicles, including the problematic Model 3.

As Sputnik reported earlier this week, Tesla still has thousands unsold cars in its inventory, despite CEO Elon Musk’s best efforts to liquidate every vehicle produced. Investors perceived the news as a signal of a low demand for Model 3s, which immediately sent Tesla’s shared down 2 percent.

The price cut only reinforced this idea, confirmed by Tesla shares plummeting 7 percent more.

“The price cut is what’s driving the stock lower, as it openly acknowledges the sunset of subsidy dollars is a material headwind,” said Craig Irwin, an analyst with Roth Capital Partners, according to Reuters report.

At the same time, it has become known that Tesla failed to deliver the expected number of cars this year. Tesla delivered 63,150 Model 3s in its fourth quarter, Reuters says, while the estimated figure was 64,900.

Bank of America reportedly expected the company to deliver 71,500 Model 3s.

Hargreaves Lansdown analyst Nicholas Hyett reportedly estimated in a client note that if Tesla continues to deliver cars at its current rate, the price cut will mean $700 million in lost revenue in 2019.

Musk has strived to stabilize the production of the troubled Model 3, in order to secure an easier cash influx and long-term financial stability for the company.

The company said it would begin delivering Model 3s to Europe and China in February, in order to compensate for troubles at home.

According to Reuters’ own calculations, Tesla gained around $3,200 per vehicle delivered in pre-tax earnings. Thus, the $2,000 price drop could eliminate more than half of that gain. Tesla turned a profit in the third quarter of 2018 for the first time since 2016.

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