Tesla, trying to work through its supply of unsold vehicles, began offering deals on its Model 3 lineup in recent days. The latest round of price reductions come after Chief Executive Elon Musk told investors during the company's TSLA shareholder meeting that all automakers change prices and Tesla is no different.
Tesla quietly began offering discounts on existing U.S. Model 3 vehicles in recent days, following similar discounts on the Model 3 and Model Y vehicles in Europe. Calling the moves "inventory discounts," Tesla contends they are not official price cuts. However, the moves to point to surplus in unsold vehicles, and the effect on profit margins is the same.
On Friday, Tesla began offering discounts of around $1,300 on new rear-wheel drive Model 3 inventory in the U.S. On Monday, the EV company extended discounts of up to around $2,800 for all-wheel drive Model 3 vehicles. However, the vast majority of all-wheel drive Model 3 cars on Monday had discounts of $250.
Tesla stock surged 4.9% to 188.87 Monday during market trade. On Friday, shares advanced 1.8% to 180.14.
Profit Margins And Price Cuts Are The Story
On April 19, Tesla reported a big first-quarter earnings decline while revenue missed views. Profit margins for the global EV giant also fell below 20% as the company executed an aggressive price-slashing strategy in the first part of 2023.
The EV company's total gross profit came in at $4.5 billion, with Tesla's profit gross margin at 19.3%, down from 23.8% in the fourth quarter and 29.1% a year earlier.
Auto gross margins excluding regulatory credits and leases skidded to 18.3% from 23.8% in the fourth quarter. That remains below the 20% gross margin "floor" Tesla previously targeted.
Last week, Musk told shareholders the company has been cutting vehicle prices to match demand in 2023.
"It's pretty straightforward," Musk said during the annual meeting on May 16. "We see what the demand is and then we adjust pricing to meet the demand."
The Tesla chief added that other automakers change prices through dealerships and that cars rarely sell for the Manufacturer's Suggested Retail Price (MSRP). Musk also said it is more evident when Tesla changes prices compared to its competitors because it doesn't have dealerships.
"Every car company does this all the time. Tesla is no exception," Musk said. "That's the actual reality."
The company is still eying 1.8 million units for 2023 and reported that auto gross margins should stabilize in the coming quarters.
Tesla Stock
Last week, shares rallied 7.2% to 180.14 after the company's annual shareholder meeting. The stock rebounded from near the 21-day line and retook the 50-day line for the first time since early April.
Investors could view Friday's move above the 50-day moving average as an early entry for Tesla stock. However, it would be extremely aggressive as Tesla still faces potential resistance at its 200-day level. If Tesla stock continues to rebound, it could potentially form a double-bottom base with a 207.89 buy point.
The stock ranks fifth in IBD's Auto Manufacturers industry group. TSLA has a 62 Composite Rating out of 99. Shares also have a 25 Relative Strength Rating. The EPS Rating is 93 out of 99.
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