Investors are cheering Elon Musk’s efforts to decrease the price of Tesla as he continues to tweak the specifications.
Tesla stock took investors on a roller-coaster ride Tuesday morning, first rushing ahead 5% before turning tail and giving back more than half its gains, and the day is still young.
Tesla stock is up 2.2% on the morning of October 22, as of 10:50 a.m. ET, despite conflicting news items about the company, both positive and negative, fighting over the direction of the stock this morning.
Charging Up
Let’s start with the bad news. A unionization attempt is underway at Tesla’s Gigafactory 2 in Buffalo, New York, according to Reuters, in an attempt to represent workers at the facility. A unionized Tesla factory would be the first in the United States to unionize, and it could result in higher labor costs (and a reduction in Tesla profits) if they are successful in their unionization efforts.
In parallel, Investor’s Business Daily reports that last week, Tesla cars were registered fewer than 20% less often in China than in the United States. This suggests that the Middle Kingdom’s demand for Tesla’s products may be weakening.
Here is the good news you have been waiting for. Last quarter, George Soros, the founder of one of the world’s most prestigious hedge fund companies, tripled his stake in Tesla stock, buying nearly a quarter-million shares and bringing his stake to 332,046 shares of the automaker.
In the meantime, Reuters is reporting that Tesla has continued to tweak the pricing of its cars as it continues to fight its price war with its rivals. The move allows Tesla to benefit from IRS tax rebates, undercut rival car companies’ prices, and maximize Tesla’s profits.
As a result of this price adjustment, Tesla has reduced the price of its budget model RWD Model 3 sedan by $500 (to $42,990) while raising the price of its most expensive Model Y Performance crossover by $1,000 (to $58,990). The IRS provides tax rebates to those individuals who purchase cars for less than $55,000 in the suggested retail price, or vans, SUVs, or pickup trucks for less than $80,000 in the suggested retail price.
What Else?
There is something shrewd about Tesla’s play here. Among Tesla’s electric cars, the RWD Model 3 is it’s most affordable. Now Elon Musk is cutting the price even more to make the car appealing to budget shoppers. The car is eligible for a federal tax credit of $7,500, and it is also eligible for a $7,500 state tax credit.
In the meantime, less price-sensitive car buyers who are interested in the even more expensive Model Y Performance may feel tempted to spend the extra $1,000 because, at a price under $59,000, they are still a long way away from the $80,000 price cap that will enable them to qualify for a tax credit from the IRS.
There is no doubt that car shoppers will continue to see today’s price as a bargain. This is because the Model Y Performance still costs 16% less than what it cost as recently as early January. Some people may even consider this to be such a compelling bargain. They would be anxious to get their hands on it before Musk hikes the price even higher soon.
At the same time, Tesla recently stated that they are receiving electrical vehicle orders two times faster than they can build the cars to fulfill them. When Tesla reports earnings next year, investors can probably expect a blowout in both sales and profits.