Why Tesla Stock Is Having A Morning Meltdown Before Market Open

Tesla, Inc. TSLA shares fell in premarket trading on Friday as the company lowered prices of its Model 3, Y vehicles yet again in the U.S.

In premarket trading, the stock fell 1.44% to $256.31, according to Benzinga Pro data.

Late Thursday, Tesla tinkered with the prices of its two best-selling electric vehicles, namely Model 3, and Y, by cutting them by 2.65%-4.23%. Commenting on the price cuts, Future Fund’s Gary Black said Wall Street will likely reduce 2024 earnings per share estimate for Tesla by another $0.30-$0.50 per share.

Terming the action as “short-term thinking,” he said the price cuts thus far haven’t produced the desired results. Instead, the fund manager recommended a $100 million advertising investment that attracts non-EV buyers to go electric, which benefits TSLA most

Tesla reported earlier this week that third-quarter deliveries that trailed tempered expectations, with the company attributing the softness to factory shutdowns in Austin and China ahead of new product launches.

Tesla bear Gordon Johnson of GLJ Research said the “automotive goldilocks” period is apparently over and Tesla’s margins are regressing to the mean due to the company’s repeated price cuts.

Citing the continued price cuts from Tesla, despite the third-quarter price reductions not stemming the quarter-over-quarter decline in volume, Johnson said he maintained his Sell rating on the stock and year-end 2024 price target of $24.33.

Tesla CEO Elon Musk’s comments on the second-quarter earnings call suggest the strategy is to sell EVs at no profit in anticipation of a high-margin revenue stream from the sale of full self-driving software.

The FSD package, however, is a long time coming amid regulatory challenges and user skepticism. The Cybertruck launch in the fourth quarter and the commercial sales of the refreshed Model 3 are seen by Black as catalysts that can push the stock out of the current lackluster stage.

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