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Tesla cut prices dramatically to start 2023. The decision created waves in the US and used car industry.
Sean Gallup/Getty Images
Prices for new and used
Tesla
vehicles have been all over the place in recent months, leaving bulls and bears with plenty of data to fuel their neverending argument about the electric-vehicle maker.
The pricing debate goes something like this: Cutting prices is a sign of weakness, while not cutting prices is a sign of strength and dropping used-car prices are a sign of weakening demand. The counterargument is that it’s cheaper
Tesla
(ticker: TSLA) cars have pushed demand to the moon.
Price, of course, is an important signal for car buyers—and car investors. Tesla’s near-unprecedented price cuts at the start of 2023 have caused waves across the new- and used-car landscape. As things settle down, and investors can look at the data for the past few months, it looks as if Tesla’s price cuts have been good for the company, and the stock.
The average price for a used Tesla is down more than $7,000, or 16%, over the past five months, according to data from automotive-information provider iSeeCars.com that was prepared for Barron’s.
That drop appears jarring, but Tesla cut the prices of new vehicles in the US by as much as 20% early in January. Track used cars, to some extent, always track the price of new cars.
Investors should pay attention to the spread between new and used cars. A widening spread can indicate that used cars are the better deal and that new-car prices have further to fall. When the spread narrows it means that demand is strong.
Investors shouldn’t forget the postpandemic situation that had some used cars selling for more than new cars. New car production was lower and if a buyer wanted a car they had to pay up for it. Demand was outstripping supply.
“For a while [in 2022] used Teslas were selling for more than new Teslas because of limited inventory and long wait times for new Tesla shoppers,” Jane Ulitskaya,
Cars.com
(CARS) Editor, told Barron’s.
Cars.com
data showing the average price for a used Tesla listed on its site has fallen roughly $6,200 between December and March, similar to the trend shown by iSeeCars.com.
The spread between a new and used Tesla, however, is up compared with recent months, based on the iSeeCars.com data. The average price for a used Tesla one-to-five years old listed on the site is at about 75% of a new Tesla. In November that ratio dipped below 70%.
Just after the dip below 70%, Tesla offered US buyers $3,750 off to take delivery by year end. Demand slowed at the end of the year because buyers were waiting for the new purchase tax credit that was passed as part of the Inflation Reduction Act.
That incentive went into effect on Jan. 1. Tesla didn’t respond to a request for comment about pricing.
The used-car data simply shows that demand for new Tesla’s is fine right now. That’s as it should be. Tesla CEO Elon Musk said in January that the price cuts led to a huge boost in order activity.
Wall Street expects Tesla to deliver about 420,000 units in the first quarter. That’s a record and up about 15,000 compared to the fourth quarter of 2022.
Future Fund Active ETFs
(FFND) co-founder Gary Black believes Tesla will sell about 424,000 units in the first quarter. By the way Musk has been talking about demand “we doubt Tesla will miss on 1Q volumes or they would lose huge credibility,” says Black. “It’s a pivotal quarter for Tesla.”
Delivery results should be out on Sunday, April 2. Tesla typically reports quarterly deliveries the second day of the new quarter.
All eyes will be on that figure. If used-car pricing is any indicator. It should be fine. If it is the bulls will have won one round the post-price cut demand debate. There will be other rounds for bulls and bears to go at it.
Tesla stock was up 6.1% on Friday at $206.12. the
S&P 500
and
Nasdaq Composite
were up 0.9% and 1.3%, respectively.
Updated rules from the IRS regarding EV purchase tax credits, which turned out to be more favorable than feared, are lifting the shares. A waiver granted by the Environmental Protection Agency that will allow California to electrify its heavy duty truck fleet faster is providing an additional lift.
Tesla stock is up about 68% so far this year, marking the best start to a year in the company’s history. The shares fell about 65% in 2022.
Write to Al Root at [email protected]