04.20.23
Tesla stock is down 10% right now at $163.
The obvious reason is the reaction to decreased margins in Q1, 24% lower YoY and lower revenue vs Q4, although deliveries have grown continuously.
The Smart analysts will explain it as a result of Tesla's aggressive price drops lately.
Indeed, they are correct.
However, the right way to look at it, IMO, is different.
Tesla had the option to keep prices high as many other manufacturers insisted they will do. But is that so?
Can a manufacturer determine the price of their product and expect it to continue selling at the same levels while facing current factors such as macro, Recession, inflation, disinflation, war, and Energy crisis?
Manufacturers need to prepare for price deflation after 2 wonderful inflation years in car prices.
Tesla made a typical choice, to keep manufacturing and growth at maximum levels, not fire staff, and keep pushing the EV disruption goal.
This choice comes at a calculated cost of lower profits and margins, but still very profitable.
The cost by Tesla owners is quick value deprecation.
The cost by TSLA shareholders is short-term volatility.
Tesla announced this path months ago by stating they will sacrifice Profits to keep the Growth story, looking at the other end of these hard times ahead.
Obviously, this gloomy macro environment will end at some point, and Tesla will find itself in the best position compared to others.
An interesting point is that Tesla expects to generate waves of income from software income on all cars sold since 2017, mostly through FSD.
A car not sold today is a car not potentially producing income for many years forward.
Tesla chose to pay their debt down to near zero during these good 2+ years at higher prices, they chose to grow at the maximum rate, build new factories from profits, and not buy their own stock at a 73% discount as many shareholders suggested, some very aggressively.
These were all steps in preparing for hard times, very responsible, risk-avoiding steps.
However, Tesla does recognize in contrast to media, government, and Legacy Auto, that the demand for EVs is growing exponentially, though, it is relative to the cost.
The parity price point between ICE and BEV should have been here by now, even without the New IRA incentives.
The reason it was delayed is the Post pandemic recovery boost, supply chain problems, interest, and inflation.
I will argue that after the recent aggressive price drops all around the world, we might as well be there, especially if added the $7500 US rebate on all Tesla Model 3 and Y (besides only a $3750 rebate on Model 3 base, which Tesla reduced this week by $2k to help mediate that).
The Q1 global ASP is around $45k.
The average US ASP is $48k.
A Model 3 base after rebate is $36.25k.
A Model Y Long range after rebate is $42.5k, and that is before introducing the Model Y base, RWD in the US yet.
The Model 3, 6 months ago was $47k (that is a 23% discount today, after a $3750 rebate).
The Model Y was $57k (that is a 25% discount today after a $7500 rebate).
I am sure many do not know, that other than Chevy Bolt and Nissan Leaf, which cannot equally be compared, Tesla is the lowest BEV in the US with incentives.
Many are not aware and still buy ICE cars with no incentives, thinking that Tesla is expensive.
Tesla does not advertise at all and never did.
Some critics suggest Tesla could advertise its Benefits, advantages, incentives, lower prices, etc. Instead of reducing prices further.
I hold the opinion that Tesla could create a user-based social media campaign/referral program.
However, they do see the price drops as inevitable and necessary for their long-term goals and rightfully, IMO, don't think advertising could help in a rapidly changing macro environment.
Such a campaign could help to combat the FUD and misinformation about EVs and Tesla.
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