Tesla reduced prices on its electric vehicles in Europe and the U.S., launching an EV price war that will boost its deliveries and challenge traditional automakers.
The automaker cut prices for its Model Y and Model 3 cars by up to 20 percent in the company's latest effort to stoke demand after several quarters of disappointing deliveries.
To continue growing and fully utilize the plants that it has opened or expanded in the last year, Tesla appears to be compromising the profit margins that Wall Street celebrated when the company was running up against production constraints.
Wedbush analyst Dan Ives said the price reductions could increase global deliveries by 12 percent to 15 percent this year and shows that CEO Elon Musk is on the offensive.
"This is a clear shot across the bow at European automakers and U.S. stalwarts [GM and Ford] that Tesla is not going to play nice in the sandbox with an EV price war now underway," Ives said. "Margins will get hit on this, but we like this strategic poker move by Musk and Tesla," Ives said in a research note.
Evercore ISI analyst Chris McNally said: "There will be a significant impact to Tesla's near-term gross margin, and the math depends on how long these new price levels last."
Even if the cuts apply to just a portion of the year and Tesla partially reverses them, 2023 earnings per share could end up 30 percent to 4 percent below the current consensus, McNally wrote to clients on Friday.