Tesla shares went down about 4% early on Wednesday but succeeded in recovering by market close, after the company stated that it would reduce the price of its cars for customers in two major markets -that are North America and China.
Overnight on Tuesday, Tesla said it was cutting prices for its Model 3, S and X in North America by about 6%, and Model S and X vehicles in China by 4%. The company’s Model S sedans and Model X sport utility vehicles (SUVs) are its older and higher-priced vehicles, compared to its Model 3 sedan and Model Y crossover SUV, as reported by CNBC.This initiative showcases some realism in the face of the coronavirus pandemic and the rising percentage in unemployment, which may affect demand for vehicles. Researchers IHS Markit recently forecasted that global vehicle sales would drop by 22% this year.“This is a smart strategic move in our opinion given the current macro and COVID environment consumers are facing. Cutting prices to further stimulate demand in the US is feasible in the near term, as the current cost structure and higher FSD pricing gives Tesla more flexibility to make these price cuts,” Wedbush Securities analyst Dan Ives stated writing in an e-mail to CNBC.