Will Price Cuts Slow Down Tesla's Stock?

In an effort to drive more sales, especially given the current economic backdrop with high inflation, Tesla is lowering prices for its cars, but will this strategy ultimately have a negative effect on its stock?

It’s not just inflation that Tesla is battling — a government-mandated reduction in electric vehicle (EV) tax credits could negatively impact sales as well. This will be the fifth price reduction Tesla has made this year, according to Reuters.

The Reuters report also noted that the electric automaker “slashed prices for its electric vehicles in Europe, Israel and Singapore, expanding a global discount drive it began in China in January while raising concerns about its industry-leading profit margin.”

Reuters said that the company’s first-quarter deliveries were “up just 4% from the previous quarter despite offering discounts in the United States, China, Japan, Australia and South Korea aimed at spurring demand.” Lowering prices could help more prospective auto buyers look at the electric automaker more closely as the world transitions to more EVs on the road.

As mentioned, the price cuts come amid the Biden administration implementing new manufacturing measures in order to qualify for a full tax credit under the Inflation Reduction Act. Certain components sourced in the United States and other countries must be found in an automaker’s batteries, putting pressure on Tesla given that its Model 3 battery is manufactured in China.

Investor’s Business Daily pointed out that the price cuts have been positive in terms of its bottom line, with deliveries higher in the first quarter of 2023. Nonetheless, the proof will be in the numbers as Tesla reports its earnings soon with expectations that it could see a 20% decline in the first quarter.

Play Bearishness in Tesla Stock

Despite the news of another price cut and negative earnings forecast, Tesla’s stock is still up 70% for the year. Nonetheless, traders can still play any short-term moves to the downside using the Direxion Daily TSLA Bear 1X Shares (TSLS).

The fund offers 100% exposure to the inverse of Tesla stock, allowing traders to play a downtrend in the company’s stock as a hedge for a bullish position or other tactical strategy. Right now, Tesla’s stock is trading below its 50-day moving average, which could signal short-term weakness — if technical indications are correct, it opens a pathway for traders to use TSLS.

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