Tesla Inc.’s shares experienced a decline of over 2% on Friday in response to another round of price cuts at the electric vehicle (EV) maker. Investors are growing concerned about the impact on profit margins and the level of demand.
Late on Thursday, Tesla reduced prices on its U.S. Model 3 and Model Y EVs by 3% to 4%, depending on the model. For instance, the cheapest trim of the Model 3 sedan dropped from $40,240 to $38,990.
Analysts from TPH & Co. expressed their concern about Tesla’s demand and its approach of relying on price cuts to stimulate purchases. They also highlighted the company’s usage of price reductions at the expense of profit margins.
Tesla’s third-quarter deliveries, which serve as a proxy for sales, fell well below expectations, compounding the negative sentiment surrounding the company’s stock.
According to the analysts at TPH, the delivery shortfall was likely influenced by lower volumes in North America. They anticipate that this situation, combined with the recent price cuts, will draw even more attention to Tesla’s margins when the company reports its earnings for the remainder of the year.
Tesla is set to announce its third-quarter results and hold a call with executives on October 18.
Related: Tesla’s Stock Falls Amid Concerns Over Profit Outlook and Weak Deliveries
Despite several price cuts throughout the year and the appeal of U.S. tax credits on EVs, Tesla’s orders have consistently remained under 450,000 vehicles per quarter, according to analysts at Evercore ISI.
The most recent price reductions are expected to exert a 10% to 12% pressure on gross margins for the fourth quarter, as indicated by Chris McNally and his team of analysts.
Furthermore, these cuts have implications for expectations in 2024. The analysts believe that the consensus estimate of around 2.3 million vehicles by 2024 is optimistic and that the Street will eventually acknowledge a range of 2.10-2.15 million vehicles as a more realistic target.
Despite ending the week with a 1.6% gain, Tesla’s stock underperformed the S&P 500 index, which experienced a 0.8% weekly decline. Nevertheless, the stock has outperformed the broader index year-to-date, boasting a 105% increase compared to the index’s 11% advance.