Dear clients,
Shares of Tesla Inc fell nearly 10% on Thursday after CEO Elon Musk signaled that the electric car maker will continue to cut prices to stimulate demand, even after a painful hit to margins.
The leading electric car maker lost more than $50 billion of its market value, while fears of an escalating price war also hit shares of General Motors, Volkswagen AG and other automakers. Investors began to dump shares of automakers from Europe and the US, fearing that they too would sacrifice margins to maintain market share.
Tesla’s $517 billion market cap on Thursday was lower than Meta Platforms for the first time since 2021.
Tesla’s gross profit fell in the first quarter to its lowest level in more than two years, falling short of Wall Street estimates after the company launched a global price war in January to defend its dominance in the US and make inroads in China, its second largest market size.
“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and a higher margin” says Musk.
Tesla has already cut prices six times this year, and Musk has proposed even more such cuts, saying that in a weak economy, the company will put sales growth ahead of profits. According to analysts, the availability of hardware in the long run will be balanced by software monetization.
At least 15 analysts cut their price targets in the wake of Tesla’s report, according to Refinitiv data, bringing the 42 analysts‘ average target down from $210 to $200, about 23% above the current stock level.
Tesla is still up 32% year-to-date, well ahead of the S&P 500’s 8%.
