Tesla Stock Drops As EV Giant Slashes U.S., European Prices … – Investor's Business Daily

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Tesla (TSLA) has cut Model 3 and Model Y prices in the U.S. and Europe, a week after big reductions in Asia. The move will make more of its models eligible for U.S. tax credits and drum up sales as analysts expect 2023 to be a difficult year for the auto industry. Tesla stock fell solidly early Friday but pared losses by the end of trading. General Motors and other automakers also retreated.
Elon Musk’s EV giant cut U.S. Model 3 prices by 6%-14%, depending on the trim. A standard trim Model 3 RWD has been cut by $3,000 to $43,990. With the Inflation Reduction Act (IRA) tax credit applied to the vehicle, consumers that meet income limits would be paying $36,240.
The Performance Model 3 trim was cut $9,000 to $53,990, getting under the $55,000 limit for tax credits. Meanwhile, Tesla’s base Model Y has been slashed $13,000, or nearly 20%, to $52,990, also below the tax credit limit. The Performance variant for that vehicle has been cut to $56,990, also down $13,000.
Tesla also cut prices significantly in Europe, with reductions in at least Austria, France, Germany, the Netherlands, Norway, Switzerland and the U.K. That comes amid signs of declining backlogs in Europe, with reduced or eliminated subsidies in key markets such as Germany.
The U.S., and European price cuts come after Tesla slashed prices for the Model 3 and Y in China and key Asian markets a week earlier. Tesla slashed the base Model 3 price in China by more than 13% to $33,570.
While the price cuts should buoy demand, especially in the U.S., they raise concerns about Tesla’s lofty margins.
Tesla stock dropped 6% early but pared losses throughout the day. TSLA shares were down 0.9% to 122.39 at the close of Friday’s market trading. On Thursday, TSLA shares angled up 0.3% to 123.56, still below its long-falling 21-day line. Shares dipped 0.8% on Tuesday after bouncing 5.9% on Monday.
Tesla’s price cuts also weighed on General Motors (GM), Ford Motor (F), Rivian (RIVN) and Lucid (LCID), among others. GM stock fell 4.8%. Ford sank 5.3%, Lucid dropped 1.9% and RIVN stock also declined 6.4%
The base Model 3 in the U.S. uses cheaper lithium iron phosphate (LFP) batteries from China. However, a large part of the IRA tax credit, $3,750, is tied to EV batteries coming from the U.S. or a country with a free-trade deal with the U.S.
The IRS says it will finalize those battery rules in March. For now, the base Model 3 appears to be eligible for the full $7,500 credit.
The Biden administration’s Inflation Reduction Act attempts to support encourages domestic U.S. lithium operations, in an effort to loosen China’s stranglehold on lithium processing. There are benchmarks EVs must meet to be eligible for tax credits in the new law. By 2024, EV batteries must have at least 40% of minerals extracted or processed domestically. That would rise to 80% in 2027.
Tesla is looking to set itself up for this and has apparently made progress on building a lithium processing facility in Texas.  Tesla has confirmed it plans to invest $365 million in the lithium plant, which would employ about 165 people full-time plus and add 250 construction jobs for about two years.
During Tesla’s second-quarter earnings call in late July, Musk called the lithium refining business a “license to print money.”
Tesla deliveries hit a record 405,278 in the fourth quarter but missed lowered forecasts despite aggressive year-end incentives. Vehicle deliveries jumped 31% vs. a year earlier and nearly 18% vs. Q3’s 343,830. The deliveries also swelled 40% to 1,313,851 in 2022, but well below the company’s 50% growth goal.
Analysts had expected Q4 Tesla deliveries of roughly 420,000, whittled down significantly from higher estimates. Tesla’s Q3 deliveries also had fallen short.
Tesla production came in at 439,701 in the fourth quarter, exceeding deliveries by more than 34,000. In Q3, output topped sales by just over 22,000.
With output ramping up at the company’s Berlin and Austin plants, Tesla’s overall production capacity is now well above 450,000 a quarter.
TSLA shares shed around 65% in 2022, with analysts reporting the stock was weighed down by demand concerns and CEO Elon Musk’s focus on Twitter.
On Friday, Citigroup (C) analyst Itay Michaeli lowered the firm’s price target on Tesla stock to 140, down from 176. However, Michaeli maintained a “neutral” rating on TSLA shares.
“We are constructive on Tesla’s strong global premium EV position and particularly the company’s improved execution in recent years,” Michaeli told investors.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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