Tesla (TSLA) bull Cathie Wood doesn’t see the EV maker’s recent price cuts as damaging the brand. Instead, they may be more of a problem for automakers trying to close the gap, she contended.
“I think traditional auto manufacturers are going to have trouble keeping up with the price declines that Tesla’s technology is enabling,” the ARK Invest founder said on Yahoo Finance Live (video above).
Wood believes the price cuts stem from Tesla’s cost leadership position in battery technology. Tesla remains the largest holding in Wood’s closely followed ARK Innovation ETF (ARKK).
Elon Musk “absolutely chose the right technology, and I think others are rethinking it now,” Wood said. “If they do not switch over to this kind of battery technology, they will not be able to catch up with Tesla in terms of price declines without losing money — whereas Tesla’s gross margins are probably going to continue moving up on balance, even as it is cutting prices because its unit volumes, the economies of scale, are going to be so significant.”
In early January, Tesla cut the Model 3 base version by $3,000 to $43,990. The Model 3 Performance variant saw a price cut of $9,000 to $53,990.
Tesla also dropped the price for the Model Y Long Range by $13,000 to $52,990 while the Performance model was cut to $56,990, about $13,000 cheaper than the prior price.
EV rival Ford (F) followed with price cuts of its own to better compete with Tesla. Though GM’s (GM) CFO Paul Jacobson told Yahoo Finance this week that he has no plans to cut prices for EVs.
To Wood’s point, the price cuts appear to have led to renewed demand (and perhaps market share gains) for Tesla, as CEO Elon Musk hinted at in the company’s latest earnings call.
But not everyone on Wall Street shares Wood’s optimism on Tesla.
Many pros think price cuts will prove to be damaging to the Tesla brand over the long term while at the same time hurting profit margins.
“Based on the statement that [Elon Musk] made on the fourth quarter earnings call, saying that his demand is 2x his supply, you’d be silly to cut price,” BofA analyst John Murphy said on Yahoo Finance Live. “You would just be eating into your profitability and not achieving any more incremental volume in the near term.”
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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