Tesla Keeps Price Cuts Coming

By Douglas A. McIntyre Published Jan 18, 7:30AM EST

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Tesla Keeps Price Cuts Coming — © jetcityimage / iStock Editorial via Getty Images

Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction) has cut car prices in Europe, as in the United States and China. The electric vehicle (EV) maker reduced the prices of its Model Y by 8% and the rear-wheel version by about 4%. Price cuts varied slightly by country. Reuters pointed out that Volkswagen is now the largest EV company in Europe, having pushed Tesla out of the top spot.

Investors’ primary concern about Tesla is that price cuts have continued for almost a year. This will hurt Tesla’s margins and bleed value from the company. It has been widely argued that Tesla has dropped prices to keep or increase market share. It has a similar market share problem in China, where its sales have fallen behind local car company BYD. (Here are five reasons to avoid Tesla Cybertruck no matter what.)

Tesla produced over 1.8 million vehicles last year, up 35%. However, every major car company globally has entered the EV market, and Tesla has become their primary target. Tesla’s success drove a 100% increase in its stock value, which took its market cap to $750 billion, making it the ninth most valuable company traded on any U.S. exchange. Its market cap is over 15 times Ford’s. The stock has trailed off about 10% this year.

Tesla has continued to grow, but not as fast as it once did. In the most recently reported quarter, revenue was $23.4 billion, up 9% year over year. Net income fell 44% on the same basis to $1.9 billion. This may already be a sign that price cuts have started to eat into margins.

Will the Tesla price cut strategy work? It certainly makes owning one more attractive. However, can the company afford it? And will shareholders support it?

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.