The Method to Elon Musk’s Price Cut Madness

Some analysts claimed that Elon Musk and Tesla’s sweeping price reductions were a sign of weak demand. However, new data approaching the end of the first quarter shows how the move has actually boosted the automaker’s market share in a few key markets around the world.

Above: A Tesla Model 3 (Image: Casey Murphy / EVANNEX).

Recent data from the European Union show that Tesla’s registrations are on the rise across the continent, with the U.S. automaker growing faster in the market in February than any other automaker (via Barron’s). Tesla sold 19,249 units in February, up from just 12,860 during the same month last year — and before the automaker officially opened its German Gigafactory.

Additionally, Tesla saw market share increase amongst battery-electric vehicles in China and exported from the country in the first two months of the year, as shown in recent data from the China Passenger Car Association. All in all, it appears that Tesla’s price cuts have done anything but shown the automaker’s weakness. In fact, most markets seem to indicate the benefits of the price reductions.

Morgan Stanley analyst Adam Jonas also noted in recent weeks that a number of factors have had a positive impact on Tesla and Musk’s strategy and outlook. Jonas considers Tesla the industry’s cost leader, and predicts that Musk’s company will continue to lead on pricing. Currently, Jonas has a ‘Buy’ rating on Tesla’s stock with a $220 price target.

“EV price cuts are not a fad, but a trend,” Jonas said. He went on to describe them as a “deflationary trend,” citing factors including lowered costs on batteries and lithium, as well as improved manufacturing efficiency.

At the time of writing, Tesla’s shares are trading for $191.90 (+$0.09), up 0.05 percent in trading hours on Monday.

Tesla’s move toward cheaper cars is not a brand new development, and it in fact has been a part of Musk’s strategy for the automaker since at least 2006 — when he penned the company’s first Master Plan.

In it, Musk wrote how the company planned to build and sell an expensive car, then use the profits to build a cheaper car, then use the profits from that car to build an even cheaper car, and so on and so forth.

With Tesla’s plans for a new Gigafactory in Mexico and a next-generation vehicle platform, Musk is hoping to even further drive down the cost of manufacturing. As Tesla begins construction on the plant in the coming months, shareholders may be able to expect a more affordable electric vehicle in the next several years — marking off yet another generation of cars from Musk’s 2006 Master Plan.

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