I am not here to deny that tesla cutting the price of its electric car won't impact their margin but if this solves the demand issue and they continue to able to sell every car they produce at full capacity I will take this as a win.
Price cut solves the demand issue overnight
In the first week of Tesla price cut in China, sales of Tesla cars according to insurance registration grew from 2k the week before to 12k
Shortly after the announcement of price cut in China, Tesla did a similar move in US resulting a drop in 51% of their US inventory
First price cut after raising prices multiple times
Let's not forget Tesla has been raising their car prices for years before the recent price cut. The price cut is in line with the easing of supply chain issues and the drop in raw material pricing which had driven up production cost during the pandamic.
Wright's law
According to Wright's law, the average time or cost per unit to manufacture a product declines the more units are produced.
Therefore I won't be too concern about margin impacted in the long term because as long as every current and future giga factories is able to produce at full capacity, it will ultimately drive the cost of production down exponentially
Tesla is still growing at an incredible pace
The overall North America autosales was down 8% year over year but Tesla still grew 40% in that period despite news of falling demand for Tesla echoed throughout the year which shows a different narrative.
Thoughts
Fortunately the price cut will able to increase demand, if Tesla is able to grow 50% yearly will be incredible because with more Tesla cars on the road, FSD will clocked more mileage and improve exponentially.
Growth worldwide will allow Tesla to scare through local factories in all major market with the advantage that their supply chain is highly vertically integrated driving down production cost
In a recessionary environment, Tesla is probably the only automaker with its high margin to have the flexibility to adjust their prices and continue to grow, along with a strong balance sheet, I am confident about the furtue of Tesla.
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