Analysts' reactions to the price cuts announced by Tesla last week are mixed. Some believe the EV maker made the right move at the right time, while others are concerned about thinning gross profit margins.

Tesla made major price cuts to all its models in the US and to the Model 3 and Model Y in Europe, following similar price cuts in China and Asia a few days before. The company reportedly did so to boost demand and make sure that more of its vehicles qualify for the Inflation Reduction Act's new EV tax credit.

Analysts and investors had been predicting price cuts were coming as Tesla's inventory reportedly piled up. According to Wedbush analyst Dan Ives cited by Yahoo Finance, the cuts are the "right medicine at the right time." 

In a note to clients on January 13, Ives argued that lowering prices was the correct strategic move in the face of possible waning demand and increased competition.

"Tesla now has global scale (Austin, Berlin, further China build-out) it did not have a few years ago and has margin flexibility to make aggressive moves like this to gain further market share in this EV arms race," Ives wrote. He added that the price cuts will boost demand by 12-14 percent globally in 2023, as Tesla and Musk go on the "offensive."


"This is a clear shot across the bow at European automakers and U.S. stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway," Ives said. The Wedbush analyst maintained his outperform rating and $175 price target.

As for concerns that cutting prices is eating into Tesla's profit margins, Dan Ives said it's the right move, long term.

Morgan Stanley's Adam Jonas told clients that the big price cuts are a way for Tesla to "flex its muscles" and put pressure on competitors.

"In an environment of EV deflation, we believe Tesla's strong balance sheet, cost/technology leadership and scale will be critical to solidifying their competitive advantage," Jonas wrote. "Within a painful reset of EV expectations globally, we see Tesla as a winner and reiterate our [Overweight] rating."

Not all analysts were as optimistic, though. Seeking Alpha reported that Guggenheim Securities downgraded the stock to Sell from Neutral on Friday as Tesla decided to "sacrifice gross margins." Similarly, Evercore ISI noted that while the steep discounts will help fuel demand, it will have "a significant impact to TSLA's near term gross margin."

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