he government has tried to make it more difficult for Elon Musk and Tesla to compete against the Legacy automakers by denying Tesla's model y of valuable 7 500 EV tax

the government has tried to make it more

difficult for Elon Musk and Tesla to

compete against the Legacy automakers by

denying Tesla's model y of valuable 7

500 EV tax credits they didn't classify

model y as an SUV which meant pricing

needed to be much lower to gain access

to the credit however this oversight has

backfired as Elon Musk has taken matters

into his own hands and put Tesla back in

control of its Destiny with the most

aggressive pricing cuts the company has

ever seen across all models now enabling

the most affordable Tesla the standard

Range model 3 to start at thirty six

thousand five hundred dollars and the

model y long range to start at just 45

500 now that its price is within range

of receiving the incentives in the

United States the initial reaction when

Tesla Cuts prices is always to to sell

the stock because this means less margin

for the company translating into less

profit but this time seems to be a

little different as reality may be

setting in for some investors the day

after Elon Musk took prices down Tesla

stock indeed opened much lower down over

five percent but by the end of the day

the stock was surprisingly barely down

less than a percent even though this

move undeniably will affect Tesla's

profits but what was even more

interesting is how Tesla's competitors

felt the pressure on their own stocks of

the three major U.S automakers General

Motors fell 4.75 percent Ford Den over

5.2 percent and stalantis down 3.8

percent keep in mind that the broader

stock market indices were all up that

day making this more of a bloodbath than

it seems Toyota in Volkswagen which also

have major U.S businesses and gate

against Tesla globally were both down

1.45 percent and 2.8 percent

respectively it appears that some of the

shareholders of these companies may have

actually gotten worried and believed

that Elon musk's strategic chess move

may actually affect sales that these

entrenched automakers that rely mainly

on ice vehicle sales the top 10

automakers are responsible for roughly

50 percent of the world's Auto Sales yet

overnight Elon musk's decision has

somehow poked each one of these

companies in the eye

and before we continue stop using Yahoo

finance stop using Google Finance and

have a look at our website the market is

open.com where we have instant stock

quotes and a brand new set of financial

data going back 15 years and it's all

freely available

let's look at why Legacy automaker

shareholders freaked out after Tesla's

EV price cuts by turning to Ford's

financial statements as an example in

2020 Ford's revenues dipped dramatically

but this has lasted for a few years

longer than people expected but now

looking at the trailing 12 months

revenues are back to where they were in

2019. but hang on a second how is this

possible if Ford's unit sales their

vehicle deliveries have continued to

drop over the years and have not yet

recovered and this is also true for

virtually all of the aforementioned

automakers the reason is because they've

been able to drastically increase prices

since Supply is so tight across the

industry vehicles are Necessities for

many and since Supply chains have been

thrown out of whack and production is

down people are willing to pay more to

get a car and to get it as soon as

possible

so Elon Musk has decided to Gambit away

short-term margins and profits at Tesla

in order to exploit this weakness that

all of the automakers are taking

advantage of he's attacking head on

these high prices which is keeping the

industry afloat Tesla can do this

because of all the automakers they

haven't seen a decline in volumes

they're one of the few to have seen an

increase over 40 percent in 2022 the

one-two punch setup for this was in the

works in the middle of last year

starting with Elon musk's note saying we

are trying to reduce delivery times as

quickly as possible long wait times are

not a good thing this was when it was

taking six months to a year in order to

deliver a Tesla since then Tesla has

been able to cut through supply chain

issues and greatly reduce wait times to

just a few weeks the stock market

misinterpreted this move as a terrible

sign since making it quick and easy to

get a Tesla makes investors believe that

there is a lack of demand but in fact it

makes a good customer experience for

everyone else it still takes months if

not literally years to get a car so they

can't keep up with their own demand but

in reality they are having production

problems leading to declining sales

meaning they need to raise prices on

customers overall creating a painful and

frustrating customer experience

the second blow was the recent drop in

prices you don't drop your price by

twenty thousand dollars in one day if

you're having demand issues for demand

you would lower it carefully to see

where demand picks up in order to keep

margins High you drop your prices twenty

thousand dollars in one day if you want

to surprise your competitors and catch

them off guard many believe they'd have

an easy time without Tesla's

best-selling model y getting the tax

credits since it was excluded now not

only is it getting the tax credits but

Tesla also slashed prices even further

so now affordable Teslas are readily

available basically right away compared

to now expensive and obsolete gas cars

for which delivery dates are up in the

air for the first time Tesla's electric

vehicles are now unmistakably cheaper on

sticker price than gas cars since

competitors are raising prices right

into Tesla's reduction of prices the

average price of a car in the United

States is is now forty nine thousand

five hundred which means model Y and

model 3 now start at four thousand

dollars and thirteen thousand dollars

cheaper respectively below the average

car

When A disruption like this occurs that

people really haven't seen before they

Resort back to what they believe is

tried and true for instance the

automakers have been around forever

they'll figure it out and they'll

recover but this leads to people making

the wrong decisions at the worst time

for instance upon hearing the news of

the price Cuts Jim Cramer tweeted that

the competition is here indicating that

Tesla had to cut prices because they've

run out of demand but in reality as

Tesla scales to hit a larger market

price simply has to be cut in order to

achieve this when Tesla goes from 1

million to 2 million cars there's simply

no Market at that size to keep selling

sixty five thousand dollar cars into

that's a luxury price but as price goes

down the addressable Market size

drastically increases according to Arc

invest 2021 data at a sixty five

thousand dollar prize Tesla has access

to roughly five percent of the overall

car market but at forty five thousand

dollars the market size triples to about

fifteen percent which is what model y

would now be targeting at thirty five

thousand dollars which is closer to the

model 3's new price Tesla can now access

about 25 percent of the market bringing

in a huge number of new buyers but the

ice vehicles have never had competition

from Tesla in this market segment before

this is a big problem for automakers

because if their sales continue to fall

they will need to raise prices even

further to make up for it thus making

their vehicles even more unattractive

and the Vicious Cycle continues and so

Jim Cramer is Right competition is here

but not for Tesla rather from Tesla and

it gets even worse for Legacy auto see

Tesla is frequently compared to apple

vertical integration premium product

iPad on Wheels Etc but Tesla doesn't

want to just focus on the high-end

Market their mission of transitioning

the world to sustainable energy is much

broader than this Tesla needs to be in

all major market segments to make this

happen and so Elon musk's price cutting

move looks more like a page from none

other than Amazon's Playbook when Amazon

enters a new market they drive down

prices and squeeze competitor editors in

order to take up market share Amazon has

some big advantages including their

technology platform which can adapt

quickly to new market segments and they

have massive scale and resources to

undercut competitors while offering a

more convenient service Amazon also

cares more about growth and market share

than they do about near-term profits for

many years investors were upset with

Amazon because they never turned a

profit and traded over a thousand times

earnings as they spend all of the money

they made on New Opportunities this led

to huge Revenue growth in the meantime

and eventually Amazon would demonstrate

here and there its massive earnings

power but while Amazon is busy taking

share many people get confused see a

high p e Ratio or lack of profits

thinking that Amazon has lost its way

only to be proven wrong later

at Tesla Elon Musk has been investing in

new batteries in manufacturing

techniques further vertically

integrating adding more automation

refining their gigafactories and

removing parts from vehicles to simplify

and reduce cost this platform that Tesla

has built will allow them to sacrifice

short-term margins without getting hurt

as much as the damage that they will

deal to automakers Tesla has the

opportunity to come out even stronger

giving it a huge advantage in the long

run currently the traditional automakers

on the surface are more profitable than

ever but below the surface they are

already struggling every automaker loses

money on every electric vehicle they

sell it's obvious with companies like

rivian or Lucid which don't have gas car

businesses to mask these losses but all

major automakers don't have enough

volume to be profitable on EVS which is

why they've been half-heartedly in this

race preferring to push gas cars instead

of Eva trees the latter also requiring

less maintenance and therefore less

future Revenue in addition to that there

have been supply chain issues plaguing

industry production as previously

mentioned hence the price increases

across the industry but just in the last

few months interest rates have

skyrocketed putting even more pressure

on demand for everyone because this

makes financing far less affordable Elon

Musk is predicting a recession this year

which historically has made it even more

challenging to sell cars now throw in

Tesla's price cuts which are meaningful

now that Tesla has a run rate near 2

million vehicles per year and growing

this could be enough to push some

competitors over the edge basically

they're amplifying the already difficult

Auto environment but for everyone else

and this trend is just getting started

Tesla has made vast improvements over

the years to its platforms which are

just beginning to pay off and yet even

after these price cuts prices are still

higher than they were about a year and a

half ago so Tesla's prices could still

fall even further if Commodities take a

hit typically as the saying goes

Commodities go up like an elevator and

down like an escalator especially during

a recession there are also U.S tax

credits for battery production which is

immensely beneficial to Tesla which

already makes and is ramping battery

production in the U.S so Tesla is well

positioned now Elon Musk is quoted for

saying that Ford may not survive the

next recession and Tesla is pushing a

little bit harder than usual this time

around to help make that happen the U.S

automakers make a living off of their

pickup truck divisions in the United

States but their biggest threat the

Cyber truck is coming out this year

adding to the chaos if that's not enough

Tesla appears to be on the precipice of

introducing a lower priced vehicle in

the twenty five thousand dollar range in

2024 which seems much more more likely

to be achievable at that price point now

that the model 3 starts at thirty six

thousand dollars

this would allow Tesla to further delve

into all major vehicle segments where

ice has little to no EV competition

today

so far Elon Musk has taken two major

important steps for Tesla both viewed

negatively by the market but the next

few years will be critical as electric

vehicle market share grows exponentially

to replace the internal combustion

engine Market the Tesla bulls have been

forecasting the demise of traditional

Auto and the Bears continue to predict

the demise of Tesla but as the current

and future economic conditions become

more challenging the true state of the

market will become clearer so do you

think electric vehicle demand will be a

problem for Tesla over the next three to

five years and what if anything will

cause either Tesla or traditional Auto

to falter such that it's no longer

ambiguous as to who has brought the

competition

don't forget to watch my video on how

subprime financing could collapse the

Auto industry please hit the like button

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