The EV segment has been a treacherous minefield for investors since the fall of 2021, and Tesla, Inc.’s (NASDAQ: TSLA) January 12 decision to slash prices in the United States and Europe by up to 20% on some of its vehicles, including the best-selling Model 3 and Model Y, suggests the path for EV players may become even more difficult. The move comes just days after Tesla implemented similar price cuts in China.
For prospective buyers, this comes as welcome news. Not only will the amount of cash necessary to buy a popular Tesla model be reduced, but the price reduction may also allow U.S. buyers to qualify for enhanced federal tax credits of up to US$7,500.
For the EV makers, including Tesla and EV start-ups such Lucid Group, Inc. (NASDAQ: LCID) and Rivian Automotive, Inc. (NASDAQ: RIVN), it is difficult to find any positives in Tesla’s action. Almost certainly, the Tesla price cuts represent confirmation of waning demand for EVs. Lucid and Rivian may be forced to follow suit, depriving them of much needed incremental cash to offset huge start-up costs.
The price reductions could also be the first shots fired in a price war involving both U.S. and China-based EV manufacturers. Few price wars in any industry have resulted in positive shareholder returns for participating (warring) companies, particularly in the early stages of such skirmishes.
Separately, and more positively for the EV industry, Lucid announced on January 12 that it produced 3,493 vehicles in 4Q 2022, up from 2,282 manufactured in 3Q 2022. The fourth quarter performance brought Lucid’s full-year 2022 production to 7,180 vehicles, ahead of its revised 6,000 to 7,000 unit manufacturing guidance.
Similar to Rivian’s lack of action when it released its own 4Q 2022 unit manufacturing results, Lucid did not update the number of reservations it has for its vehicles. Lucid had about 34,000 reservations in early November 2022, down from 37,000 in early August 2022. Not updating its reservation data could mean the current figure is not as robust as Lucid would like. (We do note though that Lucid did not update its reservation status in mid-October 2022 when it released 3Q 2022 production data.)
When Lucid and Rivian report 4Q 2022 results on February 22 and February 28, respectively, investors may get their first glimpse of whether Tesla’s price cuts have affected the demand for vehicles of other EV makers.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.