Tesla shares fall on price cut, soft Model 3 deliveries

Investor's Corner					Wall St. firm maintains Tesla $500 price target citing Model 3 gross margin surprise

Tesla said it made the move to soften the impact of falling federal tax credits.

Q4 deliveries grew to 90,700 vehicles, which was 8% more than our prior all time-high in Q3. This move is in response to the fact that Tesla customers can no longer claim the full $7,500 federal tax credit on a new EV purchase as of January 1, 2019. Tesla had previously stoked investor optimism by claiming that improvements in efficiency had reduced the number of labor hours needed to build the Model 3 by 30 percent. Come 2020, the tax credit disappears entirely (although no one will care since two-thirds of the world's wild animals are on track to disappear by 2020, too).

Tesla delivered 99,394 of its Model S and X vehicles in 2018, just shy of its 100,000 goal.

But the price cut of $2,000 on the model took the market by surprise and weighed on the stock, pushing it down 9.4% in morning trade on a broadly weaker day for USA markets.

The price cut of $2,000 beginning on Wednesday on the Model 3 - as well as on its higher-priced Model S and Model X - took the market by surprise and weighed on the stock, pushing it down 9.4 percent in morning trading.

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The electric vehicle maker said it would cut the price on its cars by US$2,000, to help make up for USA buyers now being eligible for only a US$3,750 federal tax credit for the next six months, half of what they previously received.

The company has been banking on its Model 3 sedan, the performance of which is seen crucial to the carmaker's future. The Model 3 Long Range starts at $52,200 and the Performance-which in October added the Performance Upgrade at no extra charge-lists at $63,200.

In Q4, we produced and delivered at the rate of almost 1,000 vehicles per day, setting new company records for both production and deliveries. This is despite the electric vehicle maker only producing mid and high-priced variants for the Model 3, and deliveries only being exclusive to North America.

Deliveries to customers in Europe and China will begin in February, the company said.

"The price cut is what's driving the stock lower, as it openly acknowledges the sunset of subsidy dollars is a material headwind", he said. "We continue to believe Model 3 demand remains strong, particularly as the company has not begun worldwide shipments or introduced leasing options, and are buyers on any weakness", Kallo wrote.

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