Why Tesla's Stock 38% Below Record High, While Other 'Magnificent Seven' Reach All-Time Highs

Tesla's stock price closed at $253.5 last Friday, dropping over 38% from its historical high of $414.493 in November 2021, while other “Magnificent Seven” stock prices were at or near their all-time highs.

Tesla's CEO warned on the Q3 earnings conference call that he was concerned about the impact of high interest rates on car buyers, which led many investors wrongly attribute the massive withdraw in Tesla's stock price to high interest rates. However, a crucial and undeniable reason for the decline is that Tesla has reduced the prices of its electric vehicles by 20% for the period of 2022-2023. While lower prices are not translating into higher sales, the company's profits have decreased by approximately 40%.

Beginning at the end of last year, Tesla began cutting the prices of its cars across the world in a bid to stoke demand amid concerns over slowing consumer spending in markets like the U.S. and China and as competition in the electric vehicle space ramped up.

Tesla reduced the base Model 3 RWD price by $1,250 to $38,990 while dropping the Model 3 Long Range by $1,250 to $45,990. The Elon Musk outfit also whittled down its Model 3 Performance price by $2,250 to $50,990.

Meanwhile, Tesla also cut the Model Y Long Range by $2,000 to $48,490 and the Model Y Performance vehicle trim by $2,000 to $52,490.

The Model Y Long Range starting price in the U.S. is now around 25% lower than its $65,990 price in December 2022.

Source: Tesla

Tesla continues to see its margins slip due to price cuts, the operating margins fell for the third quarter in a row. The net profit for Q3 2023 was $1.9 billion, a 44% drop from the $3.3 billion Tesla made in the same period a year earlier,whileEPS has dropped by over 50% compared to its historical high of $6.29 in October 2022.

Source: Bloomberg

Bernstein analysts also makes bear case on this electric car manufacturer, Toni Sacconaghi at Bernstein set a $150 price target for Tesla stock, indicating 38% downside.

Tesla already had to dramatically slash prices 16% in 2023 to stimulate demand and will have to do so again in 2024, Sacconaghi wrote.

Tesla’s rampant price cutting was continuing to take a toll on its bottom line, "If you do the price war, you have to make sure you have enough volume to increase and maintain profitability," John Zhang, a professor of marketing at the Wharton School, said. "It has to be a continuous battle. This war you have to wage all the way. And you need to plan ahead. That's how you win."

Conversely, some experts will tell you that price wars are unwinnable - that they're a race to the bottom that serves only to kill profitability for the entire industry. And in an industry where the underlying technology - and, thus, the costs of production - are changing rapidly, no one can be sure where the bottom is. Winnable or not, Musk chose a terrible time to pick a fight. As legacy automakers walk the tightrope to our electric future, they can rely on sales of their traditional combustion-engine vehicles to provide them with a safety net. Tesla has no safety net. For Musk, it's go electric, or bust.

Source: Business Insider, Bloomberg, Tesla