By Brian Swint and Al Root
Tesla lowered prices for its Model Y electric vehicles in Germany a week after it made similar reductions in China.
That isn’t good news for the stock.
Tesla cut the price of its Model Y Long Range and Model Y Performance by EUR5,000 (or about $5,400) on its website. That’s more than 8% lower than it was last week. The cheaper Model Y rear-wheel drive version got a discount of 4%.
Model Y and Model 3 prices this past week were reduced between 3% and 6% in China. The base version of the Model Y crossover vehicle in China now starts at about $36,000, down from about $37.000. The base Model 3 starts at about $34,500, down from $36,500.
Shares dropped 3.7% after the Chinese price cuts. Telsa stock was down 1.5% in premarket trading Wednesday while S&P 500 and Nasdaq Composite futures were down 0.4% and 0.4%, respectively.
Price cuts mean lower profit margins. Tesla cut prices around the world last year to stay competitive with rivals and to compensate for higher interest rates increasing the cost of car financing. Operating profit margins in 2023 should come in under 10%, down roughly 7 percentage points year over year.
China is the largest market for new cars and new EVs in the world, but its also the most competitive market with many auto makers vying for EV share. Future Fund Active ETF co-founder Gary Black hoped that Chinese price cuts wouldn’t spread to the rest of the world. That hasn’t been the case though.
“Tesla management still does not see that cutting [EV] prices and inventory discounts by the same amount is value destructive,” said Black. “Tesla is training its customers to wait for a deal.”
The silver lining, for Black, is that the cuts will cost only 15 cents of lost earnings per share. Black projects earnings of $3.75 a share for Tesla in 2024.
Telsa may be sacrificing margin to protect market share. In Germany, the competition is coming mainly from Volkswagen, the country’s biggest auto maker. VW overtook Tesla’s market share in the country last year.
Earlier this week, BMW Chief Financial Officer Walter Mertl said the German auto maker has passed the tipping point for combustion-engine vehicle sales and now generates most sales growth from electric cars, Reuters reported, citing a roundtable conversation.
BMW sold about 376,000 battery-electric vehicles in 2023, up almost 75% year over year. It sold about 2.2 million nonelectric vehicles, roughly flat with 2022.
In China, the biggest rival is BYD, which delivered more all-electric vehicles than Tesla in the fourth quarter for the first time.
Tesla stock has dropped 12% since Jan. 1. It’s still up 70% over the past 12 months.
Write to Brian Swint at brian.swint@barrons.com