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Tesla
stock fell after the electric-vehicle companies cut prices again in China. EV sales are going strong in the country but there are too many auto makers fighting for market share.
Model Y and Model 3 prices came down between 3% and 6%. The base version of the Model Y crossover vehicle now starts at about $36,000, down from about $37.000. The base Model 3 starts at about $34,500, down from $36,500.
Tesla shares finished down 3.7% at $218.89 on Friday while the
S&P 500
rose 0.1%, and the
Nasdaq Composite
ended flat. Through Friday trading, Tesla shares were down 12% so far in January.
Tesla cut prices aggressively around the world in 2023 amid higher interest rates and more EV competition. Investors hoped the worst of the cuts were in the rearview mirror. The pace of price cuts had slowed later in the year.
A U.S. rear-wheel drive Model 3, for instance, started at about $47,000 in 2022. The price was cut to about $44,000 in January 2023 and cut to $40,000 by April. After one more cut in October, the price for a new U.S. Model 3 ended the year at about $39,000.
The latest Chinese cuts will stoke more fears about competition and profit margins. Tesla reported operating profit margins of almost 17% in 2022. Margins, including fourth-quarter estimates, fell to just under 10% in 2023. Wall Street is projecting above 10% for 2024.
It will be tough for Tesla to get margins higher if prices are still moving lower. “The investment controversy now, again, becomes have Tesla [profit] margins bottomed?” says
Future Fund Active
exchange-traded fund co-founder Gary Black.
Demand doesn’t seem to be the problem. Chinese wholesale car-sales volume hit about 25.4 million vehicles in 2023, up from about 23.2 million in 2022. Sales of so-called new energy vehicles, China’s term for plug-in hybrids and battery electric vehicles, or BEVs, came in at 8.7 million, up from 6.5 million in 2022.
More growth is expected. Citi analyst Jeff Chung projects wholesale sales of 26 million vehicles in China in 2024, including 11.1 million NEV units. Why Tesla needed to cut amid that growth isn’t clear. Tesla didn’t respond to a request for comment about the cuts.
China does have a lot of car makers, though. More than a dozen car companies are selling thousands of BEVs a week. In the U.S. there are seven.
Tesla and
BYD
have the leading market shares in China. Tesla’s wholesale volumes in the country amounted to almost one million units, for a market share of 11%. BYD’s wholesale volumes amounted to about three million units, or about 35%.
Tesla, of course, only makes BEVs. BYD makes BEVs and plug-in hybrids. BYD sold about 1.6 million BEVs in 2023.
Tesla stock weathered the storm of 2023 price cuts admirably, doubling during the year. Whether shares can duplicate that in 2024 amid more price cuts remains to be seen.
Write to Al Root at [email protected]
Read the full article here
