In a big quarter-end push, Tesla, Inc. TSLA offered discounts on new inventory Model S, X vehicles. An analyst shared his thoughts on this pricing strategy.
What Happened: Inventory discounts on existing Model S, X vehicles, which account for roughly 4% of Tesla’s total volume, will unlikely hurt the company’s valuation as much as permanent price cuts, said Future Fund’s Gary Black.
Explaining the logic behind the deduction, the fund manager said the discounting applies to limited Model S, X volume only for the second quarter. Price cuts, however, are “discounted in perpetuity,” he said.
Black said he would prefer Tesla to come up with “creative education-based advertising” to drive long-term electric vehicle adoption. Any form of discounting produces a short-term “sugar high” as it clears excess inventories and boosts only second-quarter volumes, he said.
Why It’s Important: Black is in the camp that swears by the advantages of advertising. Tesla so far has resisted advertising and pursues a direct-to-consumer sales model.
Following plateauing of volume in the wake of the economic uncertainties, calls for Tesla to embrace advertising have grown louder. Tesla CEO Elon Musk said at the company’s annual shareholder meeting in May that he is open to considering some form of advertising.
Black currently expects Tesla to report an above-consensus, record volume of 450,000 units for the second quarter. The company is expected to report second-quarter deliveries on July 2.
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Tesla closed Friday’s session up 1.81% at $260.54, according to Benzinga Pro data.
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