China is the largest market in the world for both new autos and electric vehicles, and electric vehicle manufacturer Tesla (Tesla stock) has lowered costs in China. Investors are experiencing anxiety.
On Sunday, the Chinese version of Tesla’s website displayed reduced costs for the purchase of Tesla automobiles. For example, the base price of a Model Y is now 289,000 Chinese yuan, which is around $39,500. A short while ago, the base price of the Model Y was around $43,000.
The prices of the majority of the models and model variants appear to have decreased to a range that falls between 15,000 and 30,000 Chinese yuan, which is around $2,700 for each model.
In response to a request for comment on price, Tesla (NASDAQ:TSLA) did not provide a response.
Tesla Stock Performance
During trading on Monday morning, Tesla shares had a loss of 7.4%. The S&P 500 had a loss of 0.2%, while the Nasdaq Composite saw a loss of 1.3%.
According to a statement made by Citi analyst Jeff Chung in a research that was released on Monday, “We expect that this price-cut approach will produce overall negative sentiment” for the industry. It worries him because prices are falling at the same time as overall sales are declining. In addition, there is a normal decline in sales of electric vehicles (EVs) during the first three months of the year when government incentives for their acquisition are eliminated.
Chung, on the other hand, does not cover the shares of Tesla (NASDAQ:TSLA). Chung also covers other Chinese electric vehicle manufacturers.
Investors are on edge because they are uncertain about what is taking place in China, which is making them apprehensive. In addition, there has been a lot to process in recent times.
At the beginning of October, Tesla revealed a disappointing number of deliveries for the third quarter. The business delivered 343,830 automobiles, which was around 20,000 fewer than what was anticipated by Wall Street. As a result, the stock price dropped by 8.6% that day.
However, the number of vehicles that were manufactured during the third quarter was 365,923. At the conclusion of the quarter, there were around 20,000 automobiles loaded into ships and en route to Europe. Cars are not considered to have been delivered to consumers until they are physically in their possession. Investors had the impression that Tesla sent cars that might have been sold in China to Europe, maybe because demand in China was declining at the time.
At the tail end of the third quarter, Tesla provided a discount to Chinese purchasers of its products if they also purchased insurance from Tesla. The possibility of receiving a price cut may have discouraged potential purchasers from China. Why should you buy anything today if the price will be higher tomorrow?
During the conference call that Tesla had for its third quarter last week, company representatives stated that the company did not feel there was an issue with demand and that lower-than-expected third-quarter deliveries were in part due to tough logistics. It has gotten more difficult for the corporation to acquire ships to deliver automobiles to clients as demand has increased.
Order rates might improve now that Tesla vehicles are available in China at lower prices, especially if it was something that Chinese consumers had been waiting for. In the event that interest rates do not rise, as Citi’s Chung is concerned they will not, investors will be given something new to fret about.
Profitability is another factor that investors should take into consideration. When prices are decreased, earnings may also decrease. The automobile industry’s gross profit, excluding sales of regulatory credits, came in just below 27% for the third quarter. This figure represents a decline from the first quarter’s peak of about 30%. Expanding profit margins is something that investors are looking for.
However, there is no guarantee that lower profit margins would result from dropping prices. In recent times, prices for steel as well as materials for batteries, have decreased. Although the cost of the individual metals that make up a lithium-ion battery has increased by over 60% so far this year, they have fallen by approximately 5% from their all-time highs. In addition, the benchmark price of steel has dropped to around $760 per ton, which is much lower than its all-time high of almost $1,900 per ton, which was established approximately one year ago.
Additionally, Tesla has been working to boost production at its facility in Shanghai. A decrease in the average cost of a vehicle might result from producing more of them at the same factory.
The presence of so many variables contributes to unpredictability. The price of Tesla shares has dropped 39% since the beginning of the year as of Monday. Both the S&P 500 and the Nasdaq have experienced around a 21% and 15% drop in value, respectively.
Featured Image – Megapixl © Sergiomonti
Author Valerie Remorosa 
