Tesla shares sink as Musk's sales push by price cuts hurts margins
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Tesla Inc's shares sank more than 6.8 per cent on Thursday and dragged down other automakers after Chief Executive Elon Musk signalled the electric-vehicle maker will keep cutting prices to drum up demand even after taking a big hit to margins.
Tesla Inc's shares sank more than 6.8% on Thursday and dragged down other automakers after Chief Executive Elon Musk signalled the electric-vehicle maker will keep cutting prices to drum up demand even after taking a big hit to margins.
The stock was trading at $168.25, with at least 15 analysts lowering their price targets on Tesla. The company was set to lose around $50 billion in market value, if losses hold.
"Facing a volatile macroeconomic backdrop and weakening demand, Tesla continues to prioritize units over near-term profits," said analysts at Canaccord Genuity.
Tesla's gross margins fell to a more than two-year low in the first quarter and missed market estimates, after the company kicked off a price war in January to defend its dominance in the U.S. and make inroads in China, its second-largest market.
Musk suggested more such moves ahead, saying the company that has cut slashed prices six times so far this year will put sales growth ahead of profit in a weak economy.
That spooked investors, who dumped automakers from Europe to the United States on fears that margins will be sacrificed for maintaining share in a market that is slowing this year due to economic uncertainty.
"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," RBC analyst Tom Narayan said.
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