Tesla witnessed a drop of 9 percent in its shares on Wednesday which on worries of future profitability after the EV giant recently announced a price cut in the US for all its vehicles to offset lower green tax credits.
Tesla has been challenged with a shortcoming on quarterly deliveries of its mass-market Model 3 sedan. Reports citing experts now suggest that it would be a possibility that the $2000 price cut on all models could be the result of lowered demand in the United States.
The price cut that was put into effect Wednesday onwards took the market by surprise while weighing significantly on the stock.
“In our view, this move could suggest that what many bulls assume to be a substantial backlog … for Tesla may be less robust,” wrote Bank of America analyst John Murphy in a client note.
Tesla CEO Elon Musk has been under immense pressure to deliver on his side of the promise, which is seen to be crucial for easing a cash crunch as well as achieving long-term profitability. The company stated that it was pushing out close to 1000 Model 3s, which was in line with what Musk had promised but fell short of Wall Street’s expectations. Reports suggest that deliveries of the model in Europe and China are scheduled to begin in February.
We are not yet clear if the price cut in Tesla's models was in light of the expected weakening sales for 2019 that the company predicted due to newer EVs hitting the market.
The aforementioned price cut that was put into effect onwards of Wednesday took the market by surprise while weighing significantly on the stock. However, the shares were later down 6.7 percent at $310.48.
We are not yet clear if the price cut in Tesla’s models was in light of the expected weakening sales for 2019 that the company predicted due to newer EVs hitting the market. However, Tesla sales have benefitted from $7,500 federal tax credit on electric vehicles, but that full credit expired at the end of 2018, and new buyers will now receive only half that amount.