Tesla's price war: cheaper cars expected to drive record sales

Musk said in January that the price cuts stoked demand, playing down concerns about a weak economy.

SAN FRANCISCO (Reuters) – Tesla Inc investors are waiting to see how much Elon Musk's price cuts will pay off: the electric vehicle (EV) maker is expected this weekend to report record sales as cheaper sticker prices, helped by US subsidies, spurred demand.

Musk’s action in January kicked off a price war that was especially heated in China, betting that Tesla's industry-leading profit margins would let it rebuff growing competition and appease customers in a weak economy.

Tesla may have handed over 430,000 vehicles in the quarter ended March 31, according to analysts' estimates collected by Refinitiv. That would be up 6% from the previous quarter, and up 39% from a year earlier.

Production is expected to have risen as the automaker ramped up production at new factories in Texas and Berlin, and as China production recovered from a COVID-19 lockdown hit.

Analysts expect Tesla to further lower prices as many automakers have matched the price cuts and concerns about a weakening economy persist.

"With Tesla likely to continue ramping production at both Austin and Berlin, additional supply is likely to drive further price cuts," Barclays analyst Dan Levy said.

SUBSIDY

In the United States, Tesla slashed prices on its electric vehicles by as much as 20%, with the lowered prices making more vehicles eligible for the US subsidy of $7,500 per car.

Musk said in January that the price cuts stoked demand, playing down concerns about a weak economy.

The subsidy was likely to have given a temporary boost in the United States, pulling forward demand, said Levy.

The US Treasury Department on Friday unveiled stricter EV tax rules that will reduce tax credits on some models, with the rules set to take effect on April 19. Tesla has said a credit will be reduced for its most inexpensive car, the Model 3.

In China, Tesla's retail sales totaled 106,915 units in the year to March 19, one of the best quarters on record, according to data from China Merchants Bank International. Tesla's price cuts in China ignited a price war, with Chinese rivals including BYD and Xpeng dropping prices.

Tesla forecast a 37% rise in production volume for 2023 to 1.8 million vehicles, down from 2022's pace of 40%. Musk, who has missed his own ambitious sales targets for Tesla in recent years, said 2023 deliveries could hit 2 million vehicles, absent external disruption.

Tesla shares have soared more than 65% so far this year on hopes that the company would win the price war it started, although the stock remains down more than 50% from its peak of $414 in November 2021.

Shares have fallen since the company's investor day on March 1 when Musk said little about how soon the EV maker might launch a more affordable, mass-market vehicle.