Tesla price cuts, a wise call or a gamble?

Tesla’s stock has been hammered by more than 65% over the past year, and even though the company has been posting record numbers, deliveries and has even released their new Semi-Truck, the stock still doesn’t seem to agree.

Recently there has been a lot of concern for the demand for Tesla’s vehicles due to a variety of reasons. Some of them also include rising competition in the EV industry, But Tesla seems to respond to those concerns by reducing prices around their product lineup by upto 20% across US and Europe. These price cuts came in after the company reduced the prices in China for the second time weeks ago. To the US consumer, these price cuts came in as a shock and Wall Street worries about the declining margin that the company will encounter due to this call of theirs.

The stock lowered by more than 5% on the opening bell on Friday, but it seemed to recover and closed at -0.94% during the closing bell. The past week has been good for Tesla and its investors at the stock gained more than 8% during those 5 trading days.

These price cuts will also help customers qualify for Biden’s $7,500 Tax Credit with specific models under those price ranges. Because of Tesla’s global dominance in the EV industry and because of strong financials which they have built up in the past few years, Tesla has the potential to commit to such bold moves.

This will lead to an increase in demand for Tesla vehicles and will provide some guidance on future estimates for the company, especially when they report their Q4 earnings on 25 Jan. One can call this a right move if seen in a long term perspective for the company, but few may argue given that the margins will fall per car.

The stock is down more than 65% over the previous year, but Tesla bulls call it a great buying opportunity if anything and some even expect the stock to reach $350-400 levels this year!

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