Tesla price slashes working for now but analysts see ceiling on cuts

(Alliance News) - Electric carmaker Tesla Inc reported a 36% increase in first quarter production on Sunday, following its decision to cut the prices of its electric vehicles.

The Austin, Texas-based firm said it delivered 422,875 vehicles in the first quarter of the year, representing increase of about 36% from last year's 310,048 vehicles.

The company produced 440,808 vehicles in the first quarter, compared to 305,407 vehicles in the previous year.

Earlier this month, Tesla slashed prices of its Model S sedan and Model X SUV vehicles in the US. The price cut came for the second time this year after the company drastically cut prices in January.

According to the company's website, the Model S's price was reduced by about USD5,000 while the price of its Model X vehicles was dropped by about USD10,000.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said this was done in a "big way" to "shore up demand" as consumers scale back big spending.

"Tesla's price reductions are clearly having the desired effect for now, but there's a limit to how many times prices can be cut. With delivery targets for the year looking slightly tough to achieve, there could yet be further pressure on the group's valuation despite its sharp falls in the last couple of years," Lund-Yates continued.

Shares in Tesla were down 5.0% at USD197.02 early Monday in New York. Over the past 12 months, the stock is down 48%.

Victoria Scholar, head of investment at interactive investor, agreed that Tesla's price cutting appears to have been "working out well" but also expressed concern about the longevity of the tactic by the company, particularly amid higher electric vehicle competition.

"Global Tesla prices have been reduced by as much as 20% to tackle the weaker demand backdrop with rising interest rates, and a softening consumer outlook. There is growing speculation that Tesla could cut prices again to bolster demand, particularly in China's intensely competitive EV market. However there are concerns longer-term about whether Tesla can maintain its dominance amid the onslaught of EV competition coming to market," she said.

Tesla will post its first quarter results on April 19.

By Heather Rydings, Alliance News senior economics reporter

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