Tesla’s Discount Strategy Ignites Stock Surge

Tesla, the leading American electric vehicle manufacturer, has seen its shares skyrocket by around 7%, following a successful quarter of deliveries. This robust performance attests to the success of CEO Elon Musk’s strategy of expanding volumes via discounts. The spike has significantly padded Tesla’s market capitalization, which now stands at a staggering $887 billion.

Tesla’s shares, currently valued at $277, have more than doubled this year. The aggressive discount strategy, however, has raised concerns among some analysts about potential strain on profit margins, reports Reuters. Despite these concerns, Tesla’s strategic move resulted in the delivery of 466,140 vehicles in the second quarter, marking a 10% quarterly increase and an 83% year-on-year rise.

Gene Munster, managing partner at investment firm Deepwater Asset Management, observed, “Tesla’s price cuts are working in a big way.” He pointed out a marked acceleration in growth, stating, “The average growth of deliveries over the previous seven quarters was 50%. This (quarter) marks a measurable step up in growth.”

In contrast, Rivian Automotive, another Californian electric vehicle maker, also witnessed an impressive rise in its shares by 17.4% after it exceeded market estimates for second-quarter deliveries, despite production difficulties due to supply chain issues. Analysts have expressed optimism about Rivian’s potential to claim a significant market share due to consistent demand and efforts to resolve supply chain issues.

Several analysts now deem Tesla’s annual target of 1.8 million vehicle deliveries conservative, given it delivered half that amount in the first half of 2023 alone. Still, the focus remains on profit margins.

Bernstein analyst Toni Sacconaghi wrote in a note, “We continue to believe that Tesla will need to further lower prices this year and/or next year to achieve its volume targets, incrementally pressuring margins.”

Investors will be keeping an eye on Tesla’s gross margin, which was 19.3% in the first quarter, as Wall Street predicts it will drop to 18.6% when the company unveils its second-quarter results on July 19. Despite these challenges, Tesla’s successful quarter has solidified its position as a major player in the electric vehicle market.