Tesla (TSLA) bull Cathie Wood doesn’t see the EV maker’s recent price cuts as hurting the brand. Instead, they may be more of a problem for automakers looking to close the gap, she said.
“I think traditional automakers will have a hard time keeping up with the price drops that Tesla’s technology is enabling,” the ARK Invest founder said on Yahoo Finance Live (video above).
Wood believes the price cuts stem from Tesla’s position as a cost leader in battery technology. Tesla remains the largest holding in Wood’s closely followed ARK Innovation ETF (ARKK).
Elon Musk “absolutely picked the right technology, and I think others are rethinking it now,” Wood said. “If they don’t move to this type of battery technology, they won’t be able to catch up with Tesla in terms of price declines without losing money, while Tesla’s gross margins will likely continue to rise on balance, even if it is cutting prices because its unit volumes, economies of scale, will be so significant.”
In early January, Tesla reduced the base version of the Model 3 from $3,000 to $43,990. The Model 3 Performance variant saw a price cut from $9,000 to $53,990.
Tesla also dropped the price of the Model Y Long Range from $13,000 to $52,990, while the Performance model was reduced to $56,990, about $13,000 less than its previous price.
Electric vehicle rival Ford (F) followed with price cuts of its own to better compete with Tesla. Although GM (GM) CFO Paul Jacobson told Yahoo Finance this week that he has no plans to cut prices for electric vehicles.
According to Wood, the price cuts appear to have led to renewed demand (and possibly market share gains) for Tesla, CEO Elon Musk hinted at in the company’s latest earnings call.
But not everyone on Wall Street shares Wood’s optimism about Tesla.
Many professionals think the price cuts will prove detrimental to the Tesla brand in the long run while hurting profit margins.
“Based on the statement that [Elon Musk] made on the fourth quarter earnings call, saying its demand is 2 times its supply, you’d be foolish to cut the price,” BofA analyst John Murphy said on Yahoo Finance Live. profitability and not achieve any more incremental volume in the near term.”
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and go LinkedIn.
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