Tesla Stock Slides As Surprise China Price Cut Raises Demand Questions

Tesla is cutting the starter price of its Model 3 and Model Y sedans in China for the first time this year.

Tesla  (TSLA) – Get Tesla Inc. Report shares extended declines Monday after it cut prices for its China-made cars for the first time this year, suggesting softening demand in the world’s biggest market.

Tesla, which has been raising costs of its U.S.-made cars for much of the year, reduced the starter price of its Model 3 sedan by around 5.3%, and cut the cost of its Model Y by 9%, just days after its third quarter earnings reported echoed the impact of rising production costs and indicating narrowing profit margins for the world’s most-valuable car company.

Gross automotive margins were 27.9%, a 600 basis point decline from last year, Tesla said, and flat to the figure recorded over the second quarter, owing to put a surge in input costs and expenses linked to the ramp-up of new factories in Austin and Berlin.

The group also said full-year deliveries may fall just shy of its 50% growth target as it “simplifies operations, reduce costs, and improve the experience of our customers.”

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Tesla shares were marked 3.5% lower in pre-market trading to indicate an opening bell price of $207.00 each, a move that would extend the stock’s six-month decline to around 37.8%.

Last week, Tesla said revenues rose 56% from last year to $21.45 billion, missing analysts’ forecasts of a $21.96 billion tally following record quarterly deliveries of 343,830 vehicles.

Adjusted earnings for the three months ending in September, Tesla said, were pegged at $1.05 per share, up nearly 70% from the same period last year and 5 cents ahead of the Street consensus forecast. 

Earlier this month, the China Passenger Car Association (CPCA) said Tesla sold a record 83,135 China-made cars in September, an 8% increase from August and well ahead of the prior record, set in June, of 78,906 units.

Hot production numbers from China where Tesla re-started its Shanghai giga factory following scheduled maintenance in July, helped third quarter deliveries hit 343,830 units for the three months ending in September, a 42% year-on-year increase and the highest total ever recorded for the Texas-based automaker but modestly below analysts’ forecast.

Demand, however, is expected to wane over the final months of the year as China, the world’s biggest EV market, remains choked by Beijing’s ‘zero Covid’ policies and countries in Europe and north America pull back on big-ticket spending amid looming recession fears and the ongoing surge in energy prices

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