Tesla Stock Drops as Company Slashes Vehicle Prices

Tesla announced a $2,000 reduction in the price of all vehicles to partially offset expiring tax credits, but the move wasn’t enough to stop Wall Street from punishing the company today. The company’s stock price fell almost 10 percent upon opening (it has since rebounded slightly).

First, the price cuts. Up until now, Tesla buyers have qualified for a $7,500 rebate, good until Tesla sold its 200,000th vehicle. Once it did so, the company had two more quarters until its full tax credit was cut in half. Tesla buyers will now receive $3,750 in tax rebates instead of $7,500, so the company trimmed prices by $2,000 to partially offset the lost credit.

But while Tesla boosted the total number of vehicles it manufactured in the quarter by ~8 percent, it came in below Wall Street expectations and does not appear to have quite maintained its target 5,000 vehicles/week production target for the Model 3. Actual Model 3 production averaged ~4,700 vehicles per week. That’s vastly better than where the company was a year ago, but significantly below the 6,000/week target Musk previously said Tesla would achieve by August 2018. Overall, Tesla produced 145,846 Model 3s in 2018, along with 99,394 Model S and Model X vehicles. Model S and X production fell slightly year-on-year, but this was in-line with expectations and likely the result of the company’s intense focus on pushing Model 3 development.

According to Tesla, more than three-quarters of its Model 3 orders in the last quarter of the year were from new buyers, not pre-existing reservations. This suggests that many existing reservation holders are still waiting for the cheaper $35,000 vehicle that Tesla has promised but doesn’t yet build. It can also be read as a demonstration of strength for the vehicle’s appeal at multiple price points.

“This was a good quarter in terms of production ramp and strong underlying demand, but Tesla came up shy of bull expectations and this will be the focus of the street,” Daniel Ives, an analyst at Wedbush Securities, said in an email to Bloomberg. “We also believe the $2,000 price cut to help subsidize the lower EV tax credit is a move that was not fully expected.”

At least some of the volatility in Tesla pricing is likely due to overall market jitters and questions about whether a recession could be looming following the market’s worst overall performance since 2008. Tesla has been through hell in 2018, thanks in no small part to the antics of its CEO. With Musk having generally reigned in his own behavior and the company’s Model 3 production figures much closer to weekly production targets, the alarm bells that were ringing six months ago have quieted considerably. Hammering the stock now for what amount to relatively minor misses compared with expectations doesn’t make a great deal of sense.

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