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Tesla tumbles as investors balk at Musk's price-cutting spree

Tesla tumbles as investors balk at Musk's price-cutting spree

FILE PHOTO: The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. REUTERS/Arnd Wiegmann

Tesla's stock tumbled nearly 10 per cent on Thursday (Apr 20) after CEO Elon Musk signaled the electric vehicle maker will keep cutting prices to drive up demand, even after taking a painful hit to margins.

The leading electric car manufacturer lost over US$50 billion of its stock market value, while fears of an escalating price war also hit the shares of General Motors, Volkswagen AG and other automakers.

At US$517 billion, Tesla's market capitalization ended Thursday below Meta Platforms' for the first time since 2021.

"Tesla’s room to lower prices is not just limited to shrinking its superior margins; the EV maker seems conceptually ready to give away its hardware in the near-term in hopes of richly monetizing its software in a more distant future," Deutsche analyst Emmanuel Rosner wrote in a client note.

Tesla's gross margins fell in the first quarter to the lowest in more than two years, missing Wall Street's estimates after the company ignited a global price war in January to defend its dominance in the US and make inroads in China, its second-largest market.

Tesla's automotive gross margin, excluding regulatory credits and leasing, stood at 18.3 per cent, missing an 'above 20 per cent' target provided in January by Tesla CFO Zachary Kirkhorn.

Tesla has already slashed prices six times this year and Musk suggested more such cuts ahead, saying the company will put sales growth ahead of profit in a weak economy.

"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," Musk said.

At least 15 analysts cut their Tesla price targets following Tesla's report, pulling the median target of 42 analysts from US$210 down to US$200, or about 23 per cent above the stock's current level, according to Refinitiv data.

Investors dumped automaker shares from Europe to the United States on fears that they too will sacrifice margins to maintain market share.

Ford Motor Co and General Motors each lost about 3 per cent, Lucid Group slumped about 7 per cent.

France-based Renault SA, whose finance chief said the company will not drastically cut prices on its EVs amid Tesla's downward "spiral", dropped 8 per cent. Germany's Volkswagen fell 3.1 per cent.

Tesla remains up 32 per cent year to date, far outperforming the S&P 500's 8 per cent rise.

Source: Reuters


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