Slowing growth in demand for electric vehicles means lower prices for EVs and the stocks of companies that make them.
Tesla highlights the issue. On Saturday, it lowered prices for its cars in the U.S. It did the same in China on Sunday.
reduced Chinese prices by 14,000 yuan, or $1,933, for its Model 3, Y, S, and X vehicles, its website showed, after cutting the U.S. prices of the Model Y, S, and X vehicles by $2,000. The Model 3 was spared a price cut in America.
The U.S. costs for the base model Tesla Y, S, and X are about $43,000, $73,000, and $78,000 respectively. A base-level Model Y in China starts at about 250,000 yuan, or $35,000.
Tesla shares were down 3.3% in late trading at $142.20, while the
and
were up 1% and 1.4%, respectively. If Tesla finishes lower, it will be the seventh consecutive loss.
CEO Elon Musk took to X on Sunday, defending the cuts. “Other car companies change prices constantly and by a wide margin via market and manufacturer/dealer incentives,” he said.
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Incentives and pricing change for all car makers. Still, Tesla’s U.S. incentives were almost twice the industry average in March, at almost 12% of average transaction prices, according to Kelly Blue Book. Tesla didn’t immediately respond to a request for comment about Musk’s tweet.
Meanwhile, China’s
cut prices by up to 30,000 yuan ($4,144) for all models, including its L7, L8, L9 series and its new, full-electric MEGA model, the company said Monday on its
and
accounts.
Li Auto’s Hong Kong shares closed Monday with an 8.3% drop. Its American depositary receipts were down 5.2% at $25.02 in late trading.
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Price cuts for EVs in China started accelerating in the summer of 2023. Citi analyst Jeff Chung noted reductions on dozens of models. Prices stabilized as the year began, but the latest cuts will fuel fear of another round of reductions that would hurt profit margins.
Tesla produced operating-profit margins of almost 17% in 2022 and 9% in 2023. The number is expected to be about 8% in 2024, according to FactSet.
“Not much more room is available,” wrote BofA Securities analyst John Murphy in a Monday report. “After this additional price reduction, we believe that further significant downward adjustments would send Tesla profitability into challenging levels. Therefore, we think that future price cuts may just be smaller and temporary.”
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Unless overall EV demand recovers soon, Tesla may face low or no growth until a more affordable model hits the roads in late 2025, Murphy added. He rates Tesla stock at Hold with a target of $220 for the price.
In China, where a broader range of battery-electric vehicles are available than in the U.S., sales grew 20% in 2023. Sales growth decelerated to about 10% relative to a year earlier in the first quarter of 2024.
Write to Adam Clark at adam.clark@barrons.com and Al Root at allen.root@dowjones.com
