Tesla sinks as price cuts signal a ceiling for costlier models

3 is on display in Los Angeles California at Automobility LA formerly the LA Auto Show Press and Trade Days. — AFP

The Model 3 might be the most affordable option, but its $35,000 still puts it slightly out of reach for the masses.

Tesla reported that 75 percent of the 61,394 Model 3s it delivered during the quarter went to new customers rather than reservation holders, which suggests numerous latter are still holding out for the $35,000 vehicle. This is despite the electric auto maker only producing mid and high-priced variants for the Model 3, and deliveries only being exclusive to North America.

The news also comes as automakers and analysts expect U.S. new vehicle sales to weaken in 2019.

FactSet, which compiled an average estimate from nine analysts, projected that Tesla would deliver 2000 more vehicles than it did, including 1750 more Model 3 vehicles.

Tesla also plans to cut the prices of all their vehicles by $2,000 in an attempt to offset a reduction in federal tax credits for drivers who buy electric vehicles, previously buyers received $7,500 in federal tax credits but this figure was recently cut in half.

Analysts cited by Reuters speculate that Tesla's decision to cut prices is aimed at mitigating the loss of the credit and maintaining the true price tag of the vehicles, including the problematic Model 3. Previously, Tesla buyers had been eligible for a $7,500 federal tax credit on electric vehicle purchases, but as of January 1, the federal government has trimmed that credit to $3,750.

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Pre-market trading saw Tesla shares tumble more than 8 percent on Wednesday. Craig Irwin, an analyst with Roth Capital Partners, noted that Tesla's price adjustments on its vehicles are not helping TSLA stock either.

The company now is moving into an important phase of its business and will have to decide whether to cut production to match what appears to be waning demand, or discount its vehicles to stimulate sales like other automakers do, Gartner analyst Michael Ramsey said.

"Importantly, we believe the inventory build is natural as the company ramped production ahead of orders to meet the tax credit step down deadline".

"There remain significant opportunities to continue to grow Model 3 sales by expanding to global markets, introducing lower-priced variants and offering leasing", Tesla said.

A link to Tesla's Q4 2018 full report can be found here.

Ross Gerber, the president and CEO of Gerber Kawasaki, said Tesla's latest figures prove that its production line is consistent with high quality, but that the stock is down because of the price cut, which was unexpected.

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