On April 5th, it was reported that Tesla implemented a significant price cut in key markets such as the United States, China, and Europe earlier this year, causing shockwaves in the industry. This forced some competitors to follow suit in lowering their prices, even though they don’t have as much profit margin as Tesla.
Although the situation has stabilized since January, Wedbush Securities analyst Dan Ives believes that Tesla still has room for price cuts in the short term.
In an interview with TD Ameritrade Network, Ives pointed out that the price cuts for Tesla’s Model 3 and Model Y have brought huge returns for the electric car manufacturer. “They made the right decision to stimulate demand through price cuts. I think this ultimately paid off for them,” Ives said.
However, he added that Tesla’s future profit margins will be tighter. “The key issue is profit margins, as price cuts will have an impact on this aspect,” he wrote in a report to clients on April 2nd. Tesla will announce its first-quarter financial performance on April 19th, which will disclose information on profit margins.
Although profit margins are expected to decline, Dan Ives seems to believe that Tesla may cut prices again this year. “Their profit margin gives them more flexibility than other manufacturers to make these price cuts,” Ives said. “I think this is still the case, especially with the decrease in battery costs in the coming months and year.”
The analyst stated that even after the price cuts earlier this year, Tesla still has higher profit margins than the industry average, which enables it to lower prices further when necessary.
As a long-term Tesla bull, Dan Ives believes that demand looks very strong. He also downplayed the fact that Tesla’s stock price fell after the release of its Q1 2023 data, describing it as an instinctive sell-off reaction after the stock price almost doubled this year.
