What happened
Tesla (TSLA -1.11%) made a big growth investment over the weekend, but that's not the news driving its stock price Monday. The electric vehicle (EV) maker's shares dropped by as much as 5% in morning trading, and remained down by 1.4% as of 12:55 p.m. ET.
So what
Investors may have been pleased to hear that Tesla plans to expand its megapack battery storage business with a new factory in Shanghai, China, but on Monday morning, that's not what they were focused on. Tesla announced more price cuts for its EVs, and that might mean its profit margins will disappoint analysts. With numerous dynamics shifting essentially simultaneously, it's hard to gauge how Tesla's pricing changes will affect its bottom line.
Image source: Tesla.
Now what
Tesla's commercial megapack battery storage products are designed with the goal of helping move the world toward greater use of sustainable energy sources. By storing large quantities of electricity generated from intermittent renewable sources, the units help them provide continuous supplies of power. Once it is fully operational, the new Shanghai facility will produce 10,000 megapack units annually, capable of storing about 40 gigawatt-hours of electricity in total -- the same volume that Tesla's California production plant does now. The company said it hopes to begin production in China in the second quarter of 2024.
But it's the news that Tesla is once again cutting prices for its U.S. vehicle lineup that has investors worried. The concern, of course, is that the price cuts reflect waning demand. They could also hurt the company's profit margins. A Model Y can now be bought for less than $50,000. But there could be much more to Tesla's strategy here than just an effort to stoke demand.
What investors don't know yet is whether the company has also been cutting its expenses enough to maintain its current level of profitability with the new lower sticker prices. The move is likely a tactic intended to help Tesla maintain market share as various other EV makers ramp up production and offer consumers more competitive options. Tesla might also be improving its operating efficiencies as it ramps up its two newest factories, though.
Investors and buyers are also awaiting updates that will determine under what circumstances electric vehicle buyers can receive the full $7,500 tax credit, an incentive that was included in the Inflation Reduction Act. Tesla may be anticipating that because its batteries come from foreign sources, its customers won't be eligible for the full tax credit. It may therefore be lowering its sticker prices to compensate.
Investors will know more when Tesla delivers its first-quarter report on April 19. That could provide a positive catalyst for the shares. Over the long term, however, the growth of Tesla's energy storage business might be the bigger news for investors.
