Tesla mass market drive: TSLA mulls ‘much more affordable’ model, says overworked Elon Musk
By Jenal Mehta
13:41, 14 November 2022
Elon Musk said at a B-20 business forum that he may consider a cheaper price tag for Tesla (TSLA) cars as they expand into eastern markets.
This comes amid investors becoming increasingly frustrated with the CEO, who has become quite busy in recent weeks.
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Why does Tesla need to offer cheaper models?
A Tesla car currently costs somewhere between $55,000 to $175,000 depending on the type of model.
This kind of price tag is much too high for countries like India, where the average car purchased cost less than $50,000, the high price tag of Tesla makes it hard to strike public interest.
For eastern countries, it’s a numbers game. Companies need to find the right price level to gain the attention of a larger number of customers.
Seth Goldstein, Strategist at Morningstar wrote in an analyst note “ Tesla adjusts its prices based on raw materials costs, and it raised prices globally multiple times this year in response to those higher costs. As some raw materials prices have begun to decline, it makes sense that Tesla would reduce its prices accordingly.”
He adds that the reduction in prices in eastern markets will be partly offset by the increased prices in western markets. “While Tesla will begin to realise lower prices in China, we expect it will still benefit from higher prices in other key markets including the United States and Europe. Our base-case forecast implies global average selling prices will be up by mid-single-digit percentages in the fourth quarter of 2022 on a year-over-year basis.”
Tesla (TSLA) also comes under pressure for its price tag when smaller rivals such as Lucid (LCID), BYD (1211) and Rivian (RIVN) offer their products at a much cheaper price. Electric vehicle competition is also increasing from
Rivian (RIVN) Price Chart
Can Tesla afford to make its cars cheaper?
During the most recent quarter although Tesla (TSLA) delivered a record number of cars, it missed its target by 15,000. This is the highest level of target miss, and the company chalked it up to the rising cost of production.
Going forward to shield itself from competition and adverse economic climate Tesla will have to make its inputs cheaper
Ivanna Hampton, analyst at Morningstar says Tesla is doing just that “t comes as Tesla ramps up production at two new plants, one in Texas, and the other in Germany. It’s in line with Morningstar's view that increased production will increase the factories' profitability and lead to margin expansion. The company also revealed plans to spend up to 10-billion dollars on share repurchases next year. We view that as a good use of excess cash. We expect Tesla will eventually grow vehicle deliveries to over 5 million vehicles by 2031 while cutting production costs”
BYD (1211) Price Chart
Tesla investors bring Elon Musk to court
Tesla is facing problems internally too, as investor confidence in Elon Musk has dwindled.
Since the take-over bid of Twitter began, Musk has off loaded more than $20bn worth of his personal Tesla shares. This has likely put a downward pressure on Tesla stock, causing it to fall 20% over the past six months.
The method that Musk has been using to manage Twitter, has not been helping in easing the nerves of Tesla shareholders either.
Financial Times now reports Tesla investors have alleged that board members have breached their duties by awarding Musk share options worth $56bn back in 2018. The lawsuit says that Musk’s time is too thinly spread to be awarded the title of the CEO of the car company, and thus does not justify the pay package he received.
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