Exploring the Possibility of Tesla Lowering Prices with Little Impact on Profits According to Cathie Wood
WHAT YOU SHOULD KNOW
- Tesla recently reduced prices, raising worries about a major effect on margins and profitability.
- Cathie Wood of Ark Invest believes lowering prices will stimulate demand while still maintaining profitability.
- Wright’s Law states that battery costs decrease by 28% for every cumulative doubling in unit production.
Tesla Inc.’s recent decision to reduce prices has raised worries about a major effect on margins, which is likely to have a negative effect on profitability. Tesla is now in a position to reduce prices in response to the reduction in battery costs, according to Cathie Wood of Ark Invest. This will stimulate demand while still maintaining profitability, Wood noted.
The fund manager noted that Wright’s Law states that battery costs decrease by 28% for every cumulative doubling in unit production.
Wood pointed out that, according to Ark’s research, Tesla has taken advantage of the consumer electronics industry in a way that other automakers have not. She also noted that Tesla’s batteries are three years ahead of their competition in terms of costs for a given range and performance.
Wedbush analyst Daniel Ives believes that Tesla’s recent price cuts could potentially increase global demand and deliveries by 12-15% in the current year. This move by the company is seen as an attempt to bolster demand in a weakening market.
Investors who are optimistic about Tesla’s prospects have largely disregarded concerns about margins, believing that increased sales will make up for any negative effects on margins. When Tesla releases its financial report on January 25th, more information will be available regarding the effect of margins.
Tesla ended the trading day on Friday with a decline of 0.94%, closing at $122.40.
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