Tesla Isn’t Selling So Well These Days

Tesla (TSLA) has cut vehicle prices in North America and Europe by as much as 20% (based on the Model Y).

The company appears to have moved to slash prices in response to several consecutive quarters of vehicle deliveries coming in below market expectations and growing concerns since late last year that demand for Tesla cars is weakening.

Tesla has also been aggressively cutting prices in China, Germany, the United Kingdom, France, and other markets since last October. It seems Tesla chose to sacrifice profit margins and lower prices in order to keep utilization rates high at the new factories it brought online last year.

For the Model Y in particular, the price cut is reported to be especially steep because the vehicle is lighter than the threshold for being classified as an SUV (the U.S. government has decided to apply different EV subsidy caps depending on whether a vehicle is categorized as a sedan or an SUV).

Tesla vehicles are also seeing a roughly 30% price drop in their second year on the used-car market, about twice the 17% average decline for other luxury brands. For reference, Tesla is treated as a luxury brand in the U.S. market.

The real issue is for consumers who bought just a few months ago, paying thousands of dollars more. If they had delayed their purchase by even a month or two, they could have gotten a Tesla at a much lower price.

Tesla’s price cuts signal that the run-up in new-car and EV prices we have seen so far has likely come to an end.

As demand for new cars cools and supply of automotive semiconductors normalizes, it seems highly likely that other brands’ new-vehicle prices will eventually follow Tesla’s lead downward.

All four major U.S. indices posted strong gains on expectations that inflation is easing and the Fed will wrap up its rate hikes sooner than previously thought.

The Russell 2000 (+5.33%) and the Nasdaq (+4.53%) led the rally, while the S&P 500 (+2.70%) and the Dow Jones Industrial Average (+2.01%) lagged somewhat by comparison.

This pattern appears to reflect a rebound in the share prices of companies that sold off sharply last year.

Sector-level weekly performance shows the same trend clearly.

Consumer discretionary (+5.78%) and communication services (+3.87%), which we discussed last week, both posted solid gains, and real estate (+4.44%), materials (+4.26%), and information technology (+4.62%) all helped drive the strength.

Meanwhile, sectors that held up relatively well last year—consumer staples (-1.37%), utilities (+0.46%), and healthcare (-0.16%)—all underperformed on a relative basis.

So far this year (it has only been two weeks), sectors that suffered steep declines last year—communication services, consumer discretionary, and real estate—are clearly showing strength.

When an entire sector posts gains approaching double digits in such a short period, it implies that many individual stocks within that sector have risen even more. In other words, we have seen a fairly powerful rally.

However, healthcare—which was picked as AWARE’s top pick last year (more precisely biotech; up 7.79% based on XBI)—ended up at the bottom of the pack.

Amid all this, the 7.9% gain in materials stands out.

In three lines:

1. Tesla cuts vehicle prices by up to 20%

2. Rebound led mainly by sectors that fell the most last year

3. Healthcare is weak, but biotech (YTD +7.79%) is up