- Rival EV makers will struggle to keep pace
Tesla (TSLA) bull Cathie Wood doesn’t see the electric vehicle maker’s recent price cuts as hurting the brand. Instead, they could be more of a problem for automakers trying to close the gap, she argued.
“I think traditional automakers will have a hard time keeping up with the price drops that Tesla’s technology allows,” the ARK Invest founder said on Yahoo Finance Live (video above).
Wood believes the price cuts stem from Tesla’s cost leadership position in battery technology. Tesla remains the largest holding in the ARK Innovation ETF (ARKK) closely followed by Wood.
Elon Musk “absolutely chose the right technology, and I think others are rethinking it now,” Wood said. “If they don’t switch to this type of battery technology, they won’t be able to catch up with Tesla in terms of price cuts without losing money – while Tesla’s gross margins will likely continue to rise in the future. together, even if it cuts prices because its unit volumes, the economies of scale, are going to be so important.”
In early January, Tesla discounted the base Model 3 from $3,000 to $43,990. The Model 3 Performance variant saw a price drop from $9,000 to $53,990.
Tesla also dropped the price of the Model Y Long Range by $13,000 to $52,990 while the Performance model was reduced to $56,990, about $13,000 cheaper than the previous price.
Electric vehicle rival Ford (F) followed with its own price cuts to better compete with Tesla. Although GM (GM) Chief Financial Officer Paul Jacobson told Yahoo Finance this week that he has no plans to cut prices for electric vehicles.
For Wood, the price cuts appear to have led to renewed demand (and possibly market share gains) for Tesla, as CEO Elon Musk hinted in the company’s latest earnings call.
But not everyone on Wall Street shares Wood’s optimism about Tesla.
Many pros believe the price cuts will prove detrimental to the Tesla brand in the long run while hurting profit margins.
“Based on the statement that [Elon Musk] made on the fourth quarter earnings call, saying its demand is 2x its supply, you’d be foolish to cut prices,” BofA analyst John Murphy said on Yahoo Finance Live. reduce your profitability and achieve no more incremental volume in the short term.”
Brian Sozzi is the editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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