On Thursday, Tesla’s shares fell by nearly 10 percent after CEO Elon Musk indicated that the electric vehicle manufacturer will continue to cut prices to boost demand, even if it means sacrificing margins. The stock was trading at $163, pulling down other automakers’ shares. At least 15 analysts lowered their price targets on Tesla, whose market value was set to drop by $50 billion to around $517 billion if the losses hold. This would put Tesla’s value below that of Meta Platforms for the first time since 2021.
“Facing a volatile macroeconomic backdrop and weakening demand, Tesla continues to prioritize units over near-term profits,” said analysts at Canaccord Genuity. Tesla’s gross profit margins in the first quarter were the lowest in over two years, missing market estimates. The company started a global price war in January to defend its dominance in the United States and make inroads in China, its second-largest market.
Tesla’s automotive gross margin, excluding regulatory credits and leasing, stood at 18.3 percent, missing the target of above 20 percent set by Tesla’s CFO Zachary Kirkhorn in January. A higher gross margin means a company retains more capital that it can then use to pay for other costs or service its debt. Tesla has already cut prices six times this year, and Musk suggested that there could be more such moves ahead. He said the company would prioritize sales growth over 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. Investors sold off automakers across Europe and the US on fears that margins would be sacrificed to maintain market share in a slowing market. “Long-term we believe this [Tesla’s price cuts] is the right strategy and leverages their cost leadership position. However, this does not come without pain as we now believe margins will get worse before they get better,” said Tom Narayan, an analyst at RBC.
Shares of US automakers, from Ford Motor Co to startups such as Lucid Group, fell between 3.3 percent and 4.4 percent. Shares of France-based Renault, whose finance chief said the company would not significantly reduce prices on its EVs amid Tesla’s downward “spiral,” were down 7.6 percent, while Germany’s Volkswagen dropped 3.5 percent.
Electric vehicle (EV) stocks have been under pressure since Tesla Inc.’s highly anticipated Battery Day event on Sept. 22, where Chief Executive Officer Elon Musk announced a series of ambitious plans to increase battery production and reduce costs. Other EV makers may be unable to keep up with the pace of change that Tesla has set, analysts say. The price war between traditional automakers and electric-vehicle startups will likely continue as more companies enter the market, putting further downward pressure on prices.
Companies such as Nio, Xpeng Motors, Li Auto and WM Motor are all vying for market share in China’s booming EV sector. In Europe too there is increased competition from new players including Lucid Group, Faraday Future and Rivian Automotive Inc., who are all trying to make their mark in this new industry.