Will Tesla Continue To See Demand Or Is Another Price Cut On The Way?

Over the last year, Tesla (TSLA) has been on a fast ride. Its stock has soared more than 400% in 2020, and its delivery schedule has beaten the estimates of Wall Street. But some analysts are concerned that the electric carmaker may be running out of road.

In Q3 2020, Tesla delivered 139,300 vehicles, up from analyst expectations of 136,350, CNBC reported. While Tesla is on course to hit its goal of 500,000 vehicle deliveries for the year, some are wondering if demand for the electric cars will continue.

Joseph Spak, an analyst at RBC Capital, told Market Watch, “We do believe there could be some supply constraint, but bears may also point to some potential demand concerns. Some of the early data we’ve seen in Europe suggests sales may be softer than we expected, and we continue to believe Model 3 sales in the U.S. are down y/y [but Model Y helps U.S. demand].”

Tesla has been making some strong moves in recent months. The company has plans to open a factory in Austin, Texas, by May 2021, and could hit $500 per share in the coming years, some analysts predict, but the carmaker left many underwhelmed by its “Battery Day” event.

Leading up to the Sept. 22 gathering, Tesla CEO Elon Musk talked about the company’s plan to produce a cheaper, lower-cost battery, but there was no actual unveiling of an electric vehicle battery or news on the “million-mile battery” as anticipated. Musk, who hyped the event by saying it would be “insane,” left many disappointed.

But one important nugget did come out of Battery Day which could signal what’s ahead for Tesla. Musk reiterated the company’s plans to build a $25,000 electric vehicle. This could be taken as a sign that Tesla is ready to drop its prices again by offering a cheaper battery that could help it do it.

Tesla cut the price of the Model Y by $3,000 back in July, just four months after it began deliveries of the vehicle. In May, Tesla cut prices by 6% on the Model S, Model 3, and Model X as the coronavirus took hold and stalled car sales. As recently as October, Tesla cut Model 3 car prices in China by as much 8%. But is another price cut on the way?

Deutsche Bank analyst Emmanuel Rosner told Nasdaq that he thinks that Tesla’s strategy is a “bold new attempt to inflect down battery costs much faster than their current trajectory, which could give Tesla a large competitive advantage.”

Musk also said that Tesla will eventually produce 20 million vehicles a year and is committed to delivering half a million vehicles in 2020 -- a number that could only be reached if around 159,000 EVs are produced in Q4.

“It’s not an unattainable goal, in our view, and is most likely dependent on the [Shanghai factory] rate continuing to increase and maybe some more efficiency out of [the Fremont, California, factory],” Spak told Market Watch. “But getting to 500K...seems increasingly difficult.”

As the pandemic rages on and reduces consumer confidence in buying, carmakers such as Ford and GM are reporting 4.9% to 10% sales drops for the third quarter of 2020, respectively. Fiat Chrysler Automobiles also reported a sales decrease of 10% for Q3 2020.