Tesla’s shares sank by nearly 10 percent on Thursday after Chief Executive Elon Musk signalled the electric vehicle maker will keep cutting prices to drive up demand even after taking a big hit to margins.
The stock was trading at $163, dragging down other automakers. At least 15 analysts lowered their price targets on Tesla, whose market value was on track to drop by $50bn to about $517bn, if losses hold. That 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,” analysts at Canaccord Genuity said.
Tesla’s gross profit margins fell in the first quarter to the lowest in more than two years, missing market estimates, after the company kicked off 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 above 20 percent target provided in January by Tesla’s Chief Financial Officer Zachary Kirkhorn. A higher gross margin means a company retains more capital, which it can then use to pay for other costs or service its debt.
Tesla has already slashed prices six times this year and Musk suggested more such moves ahead, saying the company will put sales growth ahead of 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,” he said.
Investors dumped automakers from Europe to the US on fears that margins will be sacrificed for maintaining 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,” Tom Narayan, an analyst at RBC, said.
Shares of US automakers – ranging 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 will not drastically cut prices on its EVs amid Tesla’s downward “spiral”, were down by 7.6 percent, while Germany’s Volkswagen fell 3.5 percent, Al Jazeera reports.
