Tesla (NASDAQ:TSLA) shares have started the new trading week in the red as sweeping price cuts for its EVs in one of the company’s biggest growth markets have given rise to softening demand fears. However, the reality is a bit more nuanced than this superficial take. Let’s delve deeper.
Here is how Tesla’s prices in China have changed. This was a good move by Tesla because they need more orders and the backlog was gone. I wish they had done it sooner. pic.twitter.com/b6o0OGE7Lo
— Troy Teslike (@TroyTeslike) October 24, 2022
Tesla has reduced the retail price of its Model 3 and Model Y EVs in China, with the Model Y Long Range version receiving the steepest cut of 9.4 percent.
A large segment of the financial community is viewing these cuts as a sign of softening demand for Tesla EVs in China, where consumers are particularly vulnerable after a brutal correction in the housing market that has dampened individual net worth and the attendant wealth effect. Of course, the ongoing lockdowns as a result of China’s zero-COVID policy have not been helpful in reviving consumer confidence. More worryingly, China’s President Xi Jinping was able to clinch a highly unusual third term in the office over the weekend. This development has roiled China’s financial markets as the specter of more hard-hitting policies looms large as the country’s internal political checks are increasingly being neutralized in favor of manifest dictatorial tendencies. As an illustration, China’s offshore Yuan weakened by 0.7 percent today despite a spate of relatively good economic data that was published today. This suggests that the market continues to discount the rosy picture that official data releases are painting at the moment.
Another issue that will boost $TSLA 4Q demand: The ¥12K subsidy on all China EVs priced below ¥300K (M-Y SR now ¥299,988) is set to expire on 12/31/2022. At the end of Sept China’s EV sales tax exemption was extended until the end of 2023 but not the EV subsidy. https://t.co/RZcZ40L0g0
— Gary Black (@garyblack00) October 24, 2022
Regardless of the macroeconomic headwinds for Tesla in China and the attendant question marks on the near-term demand for the company’s EVs, the price cut might end up bolstering the EV giant’s bottom-line metric. China currently offers a subsidy of 12,000 Yuan ($1,600) for EVs that are priced below 300,000 Yuan ($41,000). This subsidy is slated to expire on the 31st of December, 2022. With the latest cuts, the price of the Tesla Model Y Standard Range has dropped from 316,900 Yuan to 288,900 Yuan, thereby qualifying the variant for the 12,000 Yuan subsidy.
WS traders getting this wrong. $TSLA cutting price below the key ¥300K level on M-Y SR (¥299,988) and other TSLA models coming down in tandem. TSLA cut price in China by 5% (1/3 of TSLA volume in 4Q) and gets a 40K increase in 4Q units. Net 4Q EPS effect ~$.05 positive. @elonmusk
— Gary Black (@garyblack00) October 24, 2022
The Future Fund’s Gary Black now believes that this factor might end up boosting the demand for Tesla EVs by 40,000 units in Q4 2022. Should this happen, the price cut will have directly contributed around +$0.05 to Tesla’s EPS for the quarter. Bear in mind that the EV giant still expects to grow its total annual deliveries by around 50 percent for the foreseeable future.
The post Tesla’s Price Cuts for Its EVs in China Might Increase Sales by 40,000 Units in Q4 2022 by Rohail Saleem appeared first on Wccftech.
