Investors are currently discussing whether or not Tesla’s pricing strategy will be good for the company’s business in the long run.
What went down is this:
The price of Tesla (TSLA -3.24%) stock has been climbing steadily since the beginning of the year. Following a 65% drop in value in 2022, Tesla shares have seen a 40% increase in value thus far in 2023. However, its recent run of success came to an end today as the stock experienced a plunge of more than 5% first thing Monday morning. The shares continued to trade at a loss as of 12:25 p.m. Eastern Time.
Then what?
After Tesla said earlier this month that it would cut the price of its Model Y SUV by up to $13,000, Ford has now said that it will also cut the price of its Mustang Mach-E SUV, which is in the same market. According to Reuters, Ford is cutting the price of a Mach-E by as much as $5,900 per vehicle, but the exact amount may vary depending on the model. Investors in Tesla are concerned that a trend toward falling pricing for electric vehicles (EVs) could eat away at the company’s profitability as a result of this shift.
What’s Next?
Tesla hopes that by lowering its prices, it can increase the demand for its electric vehicles. However, this is also a method for them to exploit their dominant position and put pressure on rivals like Ford, that are only starting to establish traction in their industry. In comparison to December 2021, 2022 saw a doubling of Ford’s Mach-E sales, bringing the total number of vehicles sold by the company in 2022 to approximately 39,500. Ford would undoubtedly like to obtain greater pricing for these automobiles.
However, at a conference with the media, Ford Chief Customer Officer Marin Gjaja stated that as a result of the recent price decreases, not all models of Mach-E will be profitable for the automobile manufacturer. That is exactly the response that Tesla was hoping to get.
During the fourth quarter of 2022, Tesla announced a record profit, and the company is willing to surrender part of that profitability in exchange for increased sales volume. Competitors won’t be able to keep losing money and still get more customers for very long. Even though Tesla’s share prices have leveled off today after their recent jump, it appears that the long-term approach is successful. This means that any big drop is a good time to start buying shares in the sector leader or add to shares you already own.
