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Tesla (TSLA) stock sank 3.4% on Wednesday in what amounted to its worst performance in about three weeks. News that the leading electric vehicle maker was cutting prices in Hong Kong led the market to think Tesla is still worried about soft demand. Tesla began the year with a number of price cuts across its models worldwide.
March's Consumer Price Index (CPI) also arrived early Wednesday but did not do enough to lift spirits. Though headline inflation came in below expectations, leading to an initial burst of buying, core inflation in line with consensus led a number of pundits to predict the Federal Reserve will still raise rates slightly come the May FOMC meeting. The NASDAQ lost 0.9% in the session.
On Wednesday, a newpaper in Hong Kong announced that Tesla would be cutting the price on its Model 3 Performance edition by 14.7% in China. The long range Model 3 will see an 11% cut, while the Model Y will get cut by 9%. These cuts come on top of earlier cuts from January and will not come into effect until April 15.
The main takeaway is how this will effect gross margin going forward. Tesla reports first quarter earnings on April 19. Wall Street expects the company to earn $0.85 in adjusted EPS on revenue of $23.38 billion, but the market will look for color on these recent price cuts. Deliveries in the first quarter already came in below the market's expectations, and analysts have cut their EPS estimates for Q1 in 14 separate instances. Only one analyst has raised an EPS estimate in the past 90 days.
Investors understand that price cuts are meant to help Tesla retain its market share in China, which is one of the more competitive markets for electric vehicles in the world. CEO Elon Musk called Chinese EV makers the best in the world back in January. For their part, Nio (NIO) management said in March that it would not let Tesla dictate prices in the markets, but China's top EV maker BYD (BYDDY) recently made the decision to cut the sticker price on its new Seal model.
In unrelated news, Tesla announced earlier this week that it would be building a new factory in Shanghai to build large industrial batteries. The megapack batteries will each be able to delivery power to 3,600 households for one hour. Tesla views both China and Europe as the primary markets for the batteries.
Tesla stock is back up in the premarket by about 1.2%, while the NASDAQ 100 futures are up 0.4%. It seems the market on Thursday is looking for a turnaround session. With the Moving Average Convergence Divergence (MACD) indicator in a bearish crossover, it still looks likely that TSLA stock will rotate toward support at $167.50. This is where TSLA opened during its range low on March 13. If the stock halts here and then moves higher, this price pattern will be seen as a bullish double bottom. Either way, a move above $199 is needed to get Tesla stock out of its current neutral status.
