Cathie Wood on Tesla price cuts: Rival EV makers will 'have trouble keeping up'
The EV maker's recent price cuts don't seem to be damaging the brand, according to the Tesla TSLA bull Cathie Wood. She contended that they may be more of a problem for automakers trying to close the gap.
According to ARK Invest founder, Wood believes that the price cuts stem from Tesla's cost leadership position in battery technology, because traditional auto manufacturers are going to have trouble keeping up with the price declines that Tesla's technology is enabling. 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 don't switch to this kind of battery technology, they won't be able to catch up with Tesla in terms of price declines without losing money whereas Tesla's gross margins are probably going to go up on balance, even as it is cutting prices because its unit volumes, 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.
The price for the Model Y Long Range dropped by $13,000 to $52,990, while the Performance model was cut to $56,990, about $13,000 cheaper than the previous price.
Ford F, the EV rival, has had price cuts of its own to compete with Tesla. GM's CFO Paul Jacobson told Yahoo Finance that he has no plans to cut prices for EVs.
The price cuts seem to have resulted in renewed demand and perhaps market share gains for Tesla, as CEO Elon Musk stated in the company's latest earnings call.
Many people think price cuts will be damaging to the Tesla brand over the long term while hurting profit margins.
According to John Murphy, BofA analyst John Murphy said, "You'd be silly to cut price because of the statement that Elon Musk made on the fourth quarter earnings call, saying that his demand is 2 x his supply. You would just be eating into your profitability and not achieving any more incremental volume in the near term. You can follow Sozzi on Twitter and LinkedIn.