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"Demand Constrained": Tesla Slashes Model 3 Prices In Japan By Up To 24%

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by Tyler Durden
Thursday, Feb 18, 2021 - 02:40 PM

What great timing.

It was only yesterday that ARK Invest's Cathie Wood was spouting off about how her "confidence was growing" in Tesla on CNBC, despite the auto manufacturer rising 10x in just a matter of months and eclipsing what was her long-term pie in the sky bullish target of a pre-split $4,000 per share just months ago - and today, we learn the company is hacking away at the price tags of its vehicles internationally, yet again, in what is a surefire sign that Tesla is trying to stoke demand.

"The base price of the standard model was cut to 4.29 million yen ($40,500) from 5.11 million yen on Thursday, while the long-range version saw an even steeper drop of 1.56 million yen to 4.99 million yen. The performance sedan remained at 7.17 million yen," according to Automotive News

Charts courtesy of GLJ Research

The price cuts were reported to be part of an "effort to build its presence and spur demand in a market that has seemed largely impenetrable".

Takeshi Miyao, an analyst at consulting firm Carnorama in Tokyo, told Automotive News that the cut "should have a positive impact on sales". Yeah, but - what if it doesn't?

Miyao continued, suggesting that "Tesla may fall in terms of its overall market share as the EV market in places like Japan gets bigger and new players from China enter the picture, even though its sales and profit will likely continue to grow." That is certainly the trend we have seen in Nordic countries, where after a splash onto the scene, Tesla finds itself playing catch-up. 

This marks the first time Tesla has cut prices in Japan, while the automaker has certainly been busy cutting prices elsewhere internationally just this year alone. In fact, this is the thirteenth time Tesla has cut prices this year, according to GLJ Research's Gordon Johnson. In a note to clients Thursday morning, Johnson laid out the list:

  1. Japan (2/17/21) - Tesla cut the price for its Model 3 SR+ car in Japan from ¥5.11mn (i.e., ~$48.3K) to ¥4.29mn (i.e., ~$40.6K), or a whopping -16%/$7.8K;
  2. Japan (2/17/21) - Tesla cut the price for its Model 3 LR car in Japan from ¥6.55mn (i.e., ~$61.9K) to ¥4.99mn (i.e., ~$47.2K), or a whopping -24%/$14.8K;
  3. USA (2/18/21) - Tesla cut the price for its Model 3 SR+ car across all U.S. states by $1K (or -3%);
  4. USA (2/18/21) - Tesla cut the price for its Model Y SR car across all U.S. states by $2K (or -5%);
  5. China (1/19/21) - Tesla cut the price for its made in China ("MIC) Model 3 Performance car sold in China by -19%;
  6. China (1/19/21) - Tesla cut the price for its MIC Model Y Performance car sold in China by -30%;
  7. China (1/19/21) - Tesla cut the price for its MIC LR Model Y car sold in China of -27%;
  8. France (1/20/21) - Tesla cut the price for its Model 3 SR+ car sold in France from €49.99K to €43.8K, or -12%;
  9. France (1/20/21) - Tesla cut the price for its Model 3 LR car sold in France from €57.8K to €51.99K, or -10% ;
  10. France (1/20/21) - Tesla cut the price for its Model 3 Performance car sold in France from €65.99K to €59.99K, or -9%;
  11. Germany (1/20/21) - Tesla cut the price for its Model 3 SR+ car sold in Germany from €42.99K to €39.99K , or -7%;
  12. Germany (1/20/21) - Tesla cut the price for its Model 3 LR car sold in Germany from 52.490K to €49.99K, or -5%;
  13. Germany (1/20/21) - Tesla cut the price for its Model 3 Performance car sold in Germany from €58.99K to €54.990K, or -7%.
Charts courtesy of GLJ Research

Johnson wrote to his clients on Thursday that the price cuts indicated the obvious - that the company is demand constrained:

When considering Tesla had excess inventory in 4Q20, and has never been able to sell-out its production capacity, we see the company as currently demand constrained rather than production constrained.

When considering you can still can get a Tesla car in just a few weeks (i.e., in the US + Europe + China + etc.), and U.S. demand is slowing, we note that it will be hard for E. Musk to get to 20mn cars/year of sales if (as is the case today) Tesla can't keep its current factories running at capacity without 13 price cuts in less than two months to start each year (as is the case in 2021 YTD).

He concluded: "Unlike Cathy [sic] Wood, with the, frankly, egregious number of price cuts thus far this year from Tesla, we find it hard how anyone cannot be losing confidence in the company - we certainly are."

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