Investors aren‘t sure if Tesla’s price changes are planned or made out of desperation.
What took place?
Tesla (TSLA 7.02%) has shocked some investors in recent weeks by lowering the cost of its electric vehicles (EVs), first in China and subsequently in Europe and the United States. Due to the results of these actions, the stock is still rising.
Today, that momentum is going up, and at its high point in the morning, Tesla stock was up almost 7%. As of 11:15 a.m. ET, the price of Tesla shares was still up 4.6%.
Tesla’s price reduction is having an impact on the market in China, causing shares of Chinese EV manufacturers to decline simultaneously. Nio (NIO -2.84%) and XPeng (XPEV -6.33%) saw their stock prices drop by 5%.
These changes are related, as XPeng just cut its prices to compete with Tesla. The cost of XPeng’s best-selling P7 sedan and its entry-level SUV is going down by about 12.5%. The way prices are changing in China now looks like a huge advantage for Tesla in the market. The leader in EVs is very profitable, but the Chinese companies that make EVs are still losing money.
There is also a wrong side to Tesla, though. Even though it has high-profit margins compared to traditional automakers, it’s unclear how the price change will affect future earnings. This question is, of course, whether Tesla can handle the lower revenue and make up for it with higher volume to keep its earnings growing.
Some Wall Street analysts think that it will hurt Tesla’s earnings in the long run, so they are lowering their predictions. Today, Barron’s reported that Toni Sacconaghi, a senior research analyst at Bernstein, which is part of Equitable Holdings, thinks that price cuts will cause earnings to go down because there will be less demand. He has cut his earnings prediction for 2023 by more than $1 per share to $3.80 per share.
Wedbush analyst Dan Ives, on the other hand, was more optimistic about how lower car prices will affect Tesla’s business. Ives thinks it’s an excellent strategic move, so he’s keeping his earnings forecast for 2023 at $5.35 per share. He recommends buying Tesla shares and believes the price will reach $175.
Today, the people who think that Tesla will go up are correct. But most people should agree that a price war would be wrong for both XPeng and Nio. Both lost more money in 2022 because COVID-19 problems in China hurt production and consumer demand.
Production and sales are starting to improve, but the companies will have to keep taking losses to keep their market share as Tesla tries to stay on top. The stock market is moving today because of that bad news.