Why Tesla's Price Cut Is a Genius Move

CEO Elon Musk’s venture into the communications industry hurt Tesla’s stock. Shares peaked at $384.29 before trading as low as $101.81. Buyers emerged as concerns about weak electric vehicle demand faded.

Tesla’s aggressive price cut is a genius move. Musk is correctly betting that all EV players, who joined the industry many years after it, have a cost disadvantage. Tesla has many gigafactories around the world. It has supply deals for semiconductors and raw materials. By slashing prices, firms like Ford (F), GM, Rivian (RIVN), and Lucid (LCID) must respond.

The competitors might cut prices to prevent buyers from canceling their bookings. This will push them into higher losses per vehicle sold.

Firms like Mercedes-Benz and BMW may not change prices. They might bet that they have a luxury premium brand. As a result, wealthy consumers will still buy their EVs.

The EV industry is potentially transitioning to a mature product cycle. The recession limits demand for this new market. Customers may choose to buy gas-powered vehicles. Prices for used cars are beginning to fall. Supply for these vehicles is increasing. It will make little financial sense to pick an EV over a regular vehicle when consumers may pay less for the latter.