Tesla shares sank more than 8% on Thursday and dragged down other automakers after CEO Elon Musk signaled the electric-vehicle maker will keep cutting prices to drum up demand even after taking a big hit to margins.
The market value of the world’s richest car maker plummeted around $50 billion as its stock traded at $167, with at least 15 analysts lowering their price targets.
“Facing a volatile macroeconomic backdrop and weakening demand, Tesla continues to prioritize units over near-term profits,” analysts at Canaccord Genuity told Reuters.
Tesla’s gross margins fell to a more than two-year low in the first quarter and missed market estimates, after the company kicked off a price war in January to defend its dominance in the US and make inroads in China, its second-largest market.
Musk suggested more discounted pricing is ahead, saying the company that has slashed prices six times so far this year will put sales growth ahead of profit in a weak economy.
That spooked investors, who dumped automakers from Europe to the United States on fears that margins will be sacrificed for maintaining share in a market that is slowing this year due to economic uncertainty.
“Long-term we believe this (Tesla’s price cuts) is the right strategy and leverages their cost leadership position. However, this does not come without pain as we now believe margins will get worse before they get better,” RBC analyst Tom Narayan said.
Musk on Wednesday doubled down on the price war he started at the end of last year, saying the electric vehicle (EV) maker would prioritize sales growth ahead of profit in a weak economy.
The company posted its lowest quarterly gross margin in two years, missing market estimates, as it slashed prices aggressively in markets including the United States and China to spur demand and fend off rising competition.
“It’s better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy,” Musk told analysts on a conference call. He said although the economy remained uncertain, the EV maker’s orders exceeded production.
Musk, who had said earlier that he would have liked to achieve 2 million vehicle deliveries this year, declined to reaffirm that on Wednesday but stood by the company’s official target of 1.8 million deliveries.
“Tesla’s worrying China sales figures indicate demand for its vehicles is slowing more than expected in the face of rising competition from local EV companies,” said Jesse Cohen, senior analyst at Investing.com.
Tesla said in a statement it still believed its operating margin would remain the highest among big carmakers.
The company reported total gross margin of 19.3%, short of market expectations of 22.4%, according to 14 analysts polled by Refinitiv.
Tesla also did not report its automotive gross margin, a figure closely watched by investors, with Musk saying the weak economy makes it hard to provide margin outlook.
The company posted an automotive gross margin of 19% excluding regulatory credits in the first quarter, down from 24% the previous quarter, according to Reuters’ calculation.
With Post Wires