It’s year-end and
Tesla
is in the midst of its final push to meet Wall Street expectations for a record quarter. It won’t be easy for the battery-electric vehicle leader to sell almost half a million cars amid higher interest rates and more EV competition. Instead of price cuts,
Tesla
is using a new tool to move metal: Incentives.
Barron’s looked at incentives on Tesla vehicles in inventory. Buyers can get almost $4,000 off several Model Y vehicles plus six months of free supercharging. The charging benefit can be worth roughly $900 or more, depending, of course, on how committed any driver is to using the free charging.
Total incentives can amount to more than 8% of the transaction price. The average incentive on new U.S. car sales in October was about 5% of the transaction price, according to automotive data provider Kelly Blue Book.
That’s lower than Tesla, but Tesla’s average incentive levels would be lower than 8%. Most Tesla vehicles are ordered with specific configurations from the company’s website.
U.S. auto industry incentives have been creeping up for months. They averaged less than 3% of transaction prices for much of 2022, historically low levels, and down from about 9% of the average transaction price in October 2022.
Today, incentives at Tesla span its lineup of vehicles. Incentives on some Model 3 vehicles can amount to almost 10% of the price, including free charging benefits. Tesla is also offering some Cybertruck reservation holders $1,000 off Model S and X vehicles.
(Some Cybertruck orders won’t be delivered until 2025. Reservations holders might be interested in another vehicle meanwhile.)
Tesla is trying to have a bounceback quarter after delivering about 435,000 vehicles in the third quarter, down from about 466,000 delivered in the second quarter. Wall Street is looking for about 475,000 units for the fourth quarter, which would be a record for the company.
Tesla delivered about 405,000 units in the fourth quarter of 2022. Wall Street was looking for about 420,000 units and the stock fell more than 12% on the first trading day of 2023. Slowing deliveries also foreshadowed Tesla’s 2023 price cuts.
The performance version of a Model Y started at about $63,000 late in 2022. It starts at about $52,500 now.
Tesla stock has weathered the price cuts. Shares started 2023 at about $123 a share. They dropped to almost $100 a share after the disappointing delivery results and subsequent price cuts. Shares enter the week at almost $244 each, up more than 100% from 2023 lows. The strong performance raises the stakes for a fourth-quarter delivery number that typically gets reported on Jan. 2.
After digesting the delivery figure, investors will have to evaluate what higher incentives mean for profit margins. Third-quarter operating profit margins were 7.6%, down almost 10 percentage points year over year.
Wall Street expects operating profit margins in the fourth quarter to come in at about 9%. Doing that with rising incentives will be another challenge for Tesla.
Write to Al Root at [email protected]
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