Tesla (TSLA) Cuts Prices on Model 3 While Demand Remains Strong

Tesla (TSLA) decided to slash prices for their Model 3, saying they want to make its best-selling product more affordable. Also, they announced they are discontinuing versions of other vehicles.

The company said that they are reducing the price of the Model 3 by $1,000 to $38,990. The company will no longer sell the standard range versions of the Model S and Model X, raising the minimum costs consumers will have to pay for those cars. That means the basic version of the Model S will rise from $75,000 to $80,000 and the Model X will jump to $85,000 from $81,000.

From the company they said:

“To make purchasing our vehicles even simpler, we are standardizing our global vehicle lineup and streamlining the number of trim packages offered for Model S, Model X and Model 3. We are also adjusting our pricing in order to continue to improve affordability for customers.”

Tesla CEO Elon Musk tweeted:

Cost of Tesla full self-driving option increasing by ~$1000 on August 16

— Elon Musk (@elonmusk) July 16, 2019

However, even though the price went up, it seems that Musk is standing by a claim that the company’s electric cars will be appreciating assets once they’re capable of driving themselves.

Eric Ibara, director of residual values at Kelley Blue Book says that it’s a tall order to expect vehicle values to appreciate.

“It would require a phenomenal execution of autonomous driving that the rest of the industry cannot replicate.”

In the first six months, Tesla’s stock price fell by over 31%, suggesting investors are beginning to rethink the way they value the company.

Maryann Keller, the principal at the automotive consulting firm Maryann Keller & Associates commented:

“I think that the company today is being viewed more as a traditional auto company. Tesla’s share price is unlikely to return to its highest levels unless the company becomes profitable.”

The truth is that there is a huge amount of pressure for Tesla to increase its profitability. In a recent email to its employees, Musk said that the company would need to conduct serious cost-cutting measures to become profitable, despite having just raised more than $2 billion. The company recently had accomplished record delivery which goes well for its second-quarter financial results.

However, the demand is obviously growing.

JMP Securities analysts Joseph Osha and Hilary Cauley wrote:

“More Model 3s were registered in April and May than during all of the first quarter. It is evident that Tesla’s Q2 volume should recover significantly from Q1.”

The efficacy of Tesla’s cost-cutting measures, which Musk described in May should become more clarified in the company’s upcoming earnings reports, scheduled for July 24. The report will follow a big first-quarter loss, which came after Tesla’s first consecutive quarterly profits in the second half of 2018.

Tesla stock has always been known as a pretty risky asset, and that isn’t likely to change in the future. Although the demand for the car is strong, it still isn’t known how Tesla’s result will turn out. It could be the case the company is selling more cars at lower margins, and that could drag profits down or make losses steeper.

Still, we are being bullish on it. Right now, the equity is challenging its next level of technical resistance in the $250 to $260 region. If TSLA stock manages to break out and rise above $260, it is likely to climb back to around $300, an increase of about 19%.

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