It is a 4% drop in margins compared to not reducing the price by $2k, but of course many other factors will influence QoQ margins of the M3 and overall business. It doesn't equate to a 4% drop in Tesla's overall margin.
I'm not so sure about price drops usually being in response to a drop in production costs. Q1'19 definitely was in response to the tax credit change, and Q3'19's cost reductions sparked price increases, not decreases.
Another theory I have is that it might be a worldwide price reduction, but it's mainly to stimulate demand in the US during Q2. Late May and June production usually goes entirely to NA, because cars can no longer be shipped and delivered overseas before EoQ. Undoubtedly orders during April and early May were much lower than normal, so it seems only natural that in Q2 there haven't been enough orders to allocate all production from late May onward to NA. Perhaps the price reduction is mainly to stimulate NA demand during the next couple of weeks, and price reductions overseas are only to stay in line with the motto of no discounts.
Of course cost reductions and/or some battery improvements could also be the reason, or a part of the reason.
But don't worry, a lot more would have to happen for me to be worried about Tesla
I think your thesis is correct. Tesla has a demand problem - for M3/SX in NA in Q2.
Despite Tesla maintaining Y wouldn't cannibalize 3 sales, and many others arguing similar, it most certainly will. In fact, I think it will cannibalize sales of SX as well. The Y was incredible value at $4k more (now $6k more) than the 3. It solves many of the complaints 3 owners have had re: trunk access and cargo space. The 3 hasn't sold well because it's a small sedan, but in spite of it. Larger auto trends point to a dying out of that segment. I don't believe the 3 changed that. It's sold incredibly well because it has been the only option for a desirable, high performing electric car, at a reasonable price. The Y is all those things but more with few disadvantages. Furthermore, the Y will also cannibalize sales of the SX. I think some segment of S buyers would have preferred a 3 but found it too small (and had the money to pay up). A similar argument will be made for choosing the Y over the X, especially since second row leg room is almost identical between the two. If you don't want all the bells and whistles of the X, the Y again is great value. I don't think Tesla was so naive to not see this coming (pre-COVID) and planned to manage it by limiting the availability of the Y outside of North America. If buyers didn't know when the Y would be available in their region, they could keep up global sales of 3/S/X. By keeping an eye on demand, Tesla could continue to expand Y production with both new lines and the conversion of 3 lines that were no longer needed as GigaShanghai meets the 3 demand of the Chinese market. The 3 remains a sedan and it, like the SX, will eventually reach a point where its demand is no longer growing. I assume we're still a ways off globally for that, but given the current adoption rate of EV's in general, I wouldn't be surprised if they were bumping up against that limit in North America already, at least for the time being. (Of course, this isn't a steady-state situation and Tesla can turn the demand lever for North American sales by cutting prices, like yesterday.) Tesla had a strategy to manage this cannibalization, then COVID hit.
Non-Asian global demand for 3/S/X has been hammered in Q2. On top of that, every day that the Fremont shutdown was extended was a lost day of shipping those models to EU/Asia. The last I read, it seemed as though maybe only a single RORO would make it to Europe and perhaps two to Asia before Q2 closes? Now, the remaining 5 weeks of production in the Q will be stranded in NA. With demand for the models Tesla is not production constrained on struggling, they were forced to cut prices to boost deliveries for this quarter. What other option did they have? For these reasons, unless China numbers for MIC 3 are incredible May/June, the 75k - 90k deliveries many are projecting is going to be nearly impossible to hit.
Tesla obviously saw this coming as Fremont's reopening was delayed and Elon grew increasingly frustrated by the disastrous consequences it (plus supplier disruptions) would have on Tesla's Q2 deliveries. I still believe this drove his comments on COVID/twitter rants/reopening without approval.
In conclusion, yes, Tesla has a demand problem - for 3/S/X in North America this Q. Demand for Y is astronomical, MIC 3, specifically the LR is solid, and the backlog on the Cybertruck won't be met for a long, long time. However, those aren't the vehicles up for sale over the next 5 weeks out of Fremont.
The question remains, if Tesla reports <60 - 70k deliveries this Q, will the market forgive them and the SP hold or will there be a buying opportunity?
