Electric vehicles are becoming more popular among buyers, and for most, Tesla will be the obvious first name that comes to mind on the subject. And while the latest price cuts may cause concern for bearish investors, others believe they could help woo buyers and prove Tesla’s competitive edge.
Tesla’s price cuts may actually prove the company’s competitive advantage, rather than losing its pricing — at least according to The motley fools Dan Caplinger. The claim comes amid many critics pointing to weakened demand for Tesla’s electric cars in the US and European markets, although there may be more to the story, according to Caplinger’s view.
The announcement of the Model 3 and Model Y price cuts initially resulted in a sharp drop in the price of Tesla’s stock, causing even more concern for bearish Tesla investors. In addition to the US and European markets, Tesla also cut prices in China, South Korea, Japan and Australia, and some investors have since begun to question whether it was a particularly unusual drop.
Still, Tesla’s increased production capacity could play a role in future growth, and bullish investors and analysts believe the decline is in line with the automaker’s long-term strategy. One such bullish analyst includes Caplinger, who is quick to note that the increased efficiency of new and upcoming gigafactories will soon benefit Tesla in an increasingly competitive industry.
“As production capacity has increased, Tesla should arguably be able to reap economies of scale that make it more competitive against competitors,” Caplinger wrote. “Tesla actually pointed to moderating cost inflation as a factor in the price cuts. Passing on the impact of lower costs to customers is a common way for an industry leader to demonstrate a competitive advantage.”
Tesla primarily cited moderating cost inflation as a factor for the price cuts, although it could also be related to the recently enacted tax credit update. Some of Tesla’s Model 3 and Y units were previously ineligible for the $7,500 federal EV tax credit because they were priced outside the eligible range. With recent price cuts, some of Tesla’s Model Y units have gained eligibility.
It’s impossible to predict what might happen to Tesla’s stock, but the news comes as increasing competition enters the still-niche electric car market. Legacy automakers are starting to ramp up their electric and battery production construction plans, and Tesla is likely to face a changing automotive landscape in the coming years.
Originally published on EVANNEX. Written by Peter McGuthrie.
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