© Reuters. FILE PHOTO: The logo of automaker Tesla is seen at a branch office in Bern, Switzerland on October 28, 2020. REUTERS/Arnd Wegmann
by Aditya Soni
(Reuters) – Shares of Tesla Inc (NASDAQ: NASDAQ) fell nearly 10 percent on Thursday after Chief Executive Officer Elon Musk indicated that the electric car maker would continue to cut prices to boost demand even after taking a big hit to margins.
The stock traded at $163, dragging other automakers lower. At least 15 analysts have lowered their price targets on Tesla, whose market value was on track to drop by $50 billion to about $517 billion, if losses continue. That would put Tesla’s value below that of Meta Platforms Inc (NASDAQ:) for the first time since 2021.
“Faced with a volatile macroeconomic backdrop and weak demand, Tesla continues to prioritize units over near-term earnings,” said analysts at Canaccord Genuity.
Tesla’s first-quarter gross margins fell to their lowest in more than two years, below market estimates, after the company launched a global price war in January to defend its dominance in the United States and make inroads in China, its second-biggest market. .
Tesla’s automotive gross margin, excluding regulatory and leasing credits, was 18.3%, surpassing the above-20% target provided by Tesla Chief Financial Officer Zachary Kirkhorn in January.
Tesla has already cut prices six times this year and Musk has suggested more such moves in the future, saying the company will put sales growth before profit in a weak economy.
“We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus lower volume and higher margin,” he said.
Investors have dumped automakers from Europe to the US over fears of sacrificing profit margins in order to preserve share in a slowing market.
RBC analyst Tom Narayan said: “Longer term, we believe (Tesla’s price cuts) are the right strategy and cement its cost leadership position. However, this does not come without pain as we now believe margins will get worse before they get better.” “. .
US automakers ranging from Ford Motor (NYSE:Co) to start-ups such as Lucid Group Inc. fell between 3.3% and 4.4%.
France-based Renault SA (OTC:), whose chief financial officer said the company will not cut prices for its electric cars drastically amid Tesla’s downward spiral, fell 7.6%, while Germany’s Volkswagen (ETR:) slipped 3.5%. %.
Graphic: Tesla Stock Rebound in 2023 https://www.reuters.com/graphics/TESLA-STOCKS/zgpobjqoevd/Pasted%20image%201681997172133.png