Tesla’s upcoming quarterly report will let investors look into the effect of price cuts, but the carmaker has cut prices in the USA yet again
In a pretty surprising move, Tesla Inc has slashed the prices of the Model 3 and Model Y yet again in the USA. This is the sixth time the California-based carmaker has cut prices to lure more buyers. While such price reductions affects the profit margins, CEO Elon Musk feels it’s the only way to tackle the slowdown looming over the market.
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The announcement of price cuts comes just a few days before the carmaker releases its first-quarter earnings report on Wednesday next week. This move sent the company’s stocks downhill by almost 3% in early trading. Overall, Tesla’s shares have grown less than 50 percent this year after their most significant annual drop last year.
Tesla Model Y Priced 20% Lower in USA
As per the carmaker’s website, the price of the Tesla Model 3 ‘rear wheel drive’ has come down by $2,000 to $39,990. On the other hand, the Model Y ‘long range’ and ‘performance’ have got cheaper by $3,000 each. So far, the carmaker has slashed prices of its entry-level Model 3 by 11% this year. On the other hand, the base Model Y is now priced 20% lower in the United States. The price cuts are, in fact, not just limited to the US market. The carmaker has already slashed prices in the China, Israel, Singapore, Japan, Australia, South Korea and Europe.
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Interestingly, however, despite multiple price cuts, Tesla Inc reported a meagre 4% rise in deliveries in the first quarter of the ongoing calendar year. This is significantly lesser than the 17.8% growth it reported in the quarter before. Looking at this, several industry experts have predicted more price cuts from the carmaker. These price reductions will likely aid Tesla take on rivals like the Ford Motor Co. in the USA and BYD in China. For the first quarter, Wall Street predicts the carmaker’s auto gross margin to register a three-year low of 23.2%. Meanwhile, its revenue is expected to grow 24.2% YoY to $23.29 billion.
Resale Value Tanks
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The regular price cuts has had a detrimental effect on the resale value. As is understandable, the significant price drops have resulted into Tesla models commanding lower values in various used car markets. For instance, the Model 3 long-range, which cost £57,435 in the UK in January 2023, won’t fetch much above £31,300 in resale in January 2024. This corresponds to a huge 46% depreciation. Similar trends can be witnessed even in the USA. “Tesla has also struggled to increase its second-hand sales operation, meaning cars are often sold too cheaply,” said Dylan Setterfield, head of forecasting at CAP HPI.
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