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Tesla stock skid continues after company cuts prices on Model Y, reportedly scraps low-cost Model 2

Matthew Fox   

Tesla stock skid continues after company cuts prices on Model Y, reportedly scraps low-cost Model 2
  • Tesla stock continued its deep year-to-date decline Friday as it dealt with an inventory buildup.
  • The company implemented price cuts of about $5,000 for some Model Y vehicles this week.
  • Separately, a report said Tesla was scrapping its low-cost Model 2 plans.

Tesla's stock decline continued Friday after a report said it was scrapping its plans for a low-cost Model 2 and as it dealt with a sizable inventory buildup, which appears to have led to sharp price cuts on some of its Model Y vehicles.

The stock dropped as much as 6% on Friday, extending its weeklong decline to about 8% and its year-to-date decline to about 34%.

Reuters, citing three people familiar with the matter as well as internal company messages, reported Tesla canceled plans to develop its long-promised low-cost car that was expected to be just $25,000.

Instead of developing a low-priced car, Tesla plans to continue to focus on developing self-driving robo-taxis, the report said.

"Elon's directive is to go all in on robo-taxi," a source told Reuters.

The reported move comes amid concerns of profit-margin deterioration at Tesla, as well as intensifying competition from low-cost carmakers in China.

Tesla CEO Elon Musk responded to the report on X, saying: "Reuters is lying (again)."

Tesla reported first-quarter vehicle deliveries of 386,810 last quarter, well below analyst estimates and 46,561 vehicles below its first-quarter production of 433,371, representing the company's biggest-ever stockpile of vehicles, according to Bloomberg.

The company appears to be clearing that inventory buildup via aggressive price cuts on its most popular vehicle, the Model Y. As of Friday morning, some Model Y vehicle builds were marked down by about $5,000, including the long-range and performance versions.

The price cuts on certain Model Y vehicles come just a few days after the company said it would raise the price of its Model Y by $1,000.

Weakness in first-quarter vehicle deliveries was attributed by Tesla to a temporary factory shutdown in Berlin, shipping disruptions in the Red Sea, and the early production ramp of the updated Model 3 at its California factory.

But Ryan Brinkman, a JPMorgan analyst, said weakening demand for Tesla vehicles was also likely a big contributing factor to the recent sales miss, especially amid intensifying competition from China and the growing allure of hybrid vehicles in America.

Brinkman said in a Wednesday note that the difference between vehicle production and deliveries in the first quarter "dispels the notion that 1Q deliveries were somehow supply rather than demand constrained."

He lowered his Tesla price target to $115 and warned investors about the company's "demanding valuation."

"With 1Q24 deliveries now known to have contracted, we are highly confident both automotive and total company revenue will be negative in 1Q, likely causing even the most bullish investors to take a sentiment check," Brinkman said.

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