What happened
Tesla (TSLA 1.53%) has ruffled some investors' feathers in recent weeks, as it has slashed prices of its electric vehicle (EV) offerings, first in China and then in Europe and the U.S. Ramifications from those moves continue to drive momentum in the stock.
Today that momentum is to the upside, with Tesla stock jumping almost 7% at its morning high. As of 11:15 a.m. ET, Tesla shares were still trading up by 4.6%.
NASDAQ: TSLA
Key Data Points
At the same time, shares of Chinese EV makers are tanking, as Tesla's price cuts seem to be impacting the market in that country. Shares of Nio (NIO 3.45%) and XPeng (XPEV 3.31%) were down by 5% and 7.7%, respectively.
Image source: Tesla.
So what
Those moves are interrelated, as XPeng just announced its own price cuts to better compete with Tesla. XPeng is dropping the price of its best-selling P7 sedan as well as its base model SUV by about 12.5%. The pricing dynamic evolving in China now looks to be a huge competitive advantage for Tesla. The EV leader is very profitable, while the Chinese EV makers are still generating operating losses.
Now what
There is a downside for Tesla, too, however. While it has high profit margins compared to traditional automakers, the pricing move's impact on future earnings remains a question. That question, of course, is whether Tesla can absorb the lower revenue and make up for it with higher volume to keep its earnings growing.
Some Wall Street analysts have decided that it will ultimately have a negative impact on Tesla earnings and are cutting estimates. Today, Barron's shared that Bernstein (part of Equitable Holdings) senior research analyst Toni Sacconaghi thinks lower demand will cause the price cuts to reduce earnings. He has cut his 2023 earnings estimate by more than $1 to $3.80 per share.
On the other hand, Wedbush analyst Dan Ives was more optimistic on how lower vehicle prices will affect Tesla's business. Ives thinks it's a positive strategic move and is maintaining his 2023 earnings estimate at $5.35 a share. He rates Tesla shares a buy with a price target of $175.
NYSE: XPEV
Key Data Points
Tesla bulls are winning the day among those differing views today. But there should be consensus for the opinion that a price war is bad news for XPeng and Nio. Both have seen losses accelerate throughout 2022 as production and consumer demand were hit by COVID-19 issues in China.
NYSE: NIO
Key Data Points
Now, just as production and sales are recovering, the companies will have to keep absorbing losses to hold on to market share as Tesla seeks to continue to be dominant. That bad news is being reflected in the stock moves today.
