Tesla Hikes Price Due to High Production Costs
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Tesla Hikes Price Due to High Production Costs

Story Highlights

Tesla has hiked the prices of its high-end car models in the US in response to rising raw material costs. Chief Executive Officer (CEO) Elon Musk has defended the hike, insisting it takes into account anticipated supplier and logistics costs increases.

Rising raw material costs, supply, and logistics hurdles have left Tesla (TSLA) with no option but to raise the prices of its car models in the U.S. The Wall Street Journal reports a price rise of as much as $6,000 on some models as the electric car giant tries to offset rising production costs along its supply chain.

Tesla’s Price Hikes

The Model 3 long-range car will retail for $57,990 in the US, up from $55,990. Customers will also have to pay $3,000 more to acquire the Model Y long range, with the performance version subjected to a $2,000 price increase. In addition, the price for the Model S dual-motor all-wheel-drive has been increased by $5,000, with the Model X dual-motor all-wheel-drive going for $120,990, up by $6,000.

The price hikes take into account the prospect of a further increase in costs and the months-long waitlist. According to Tesla’s Chief Finance Officer (CFO), Zachary Kirkhorn, the current cost structure is 10% to 15%, dependent on the swings in prices of key raw materials. The price hikes also come at a time when the automaker is planning to cut 10% of its workforce.

Rising Raw Material Costs

According to Reuters, the electric car giant raised prices as the costs for aluminum and lithium used in cars, along with batteries, have increased significantly. In addition, the automaker is struggling to source chips and other supplies crucial to the production chain due to industry-wide shortages. Elon Musk has previously reiterated the need for carmakers to get into the lithium business to try and keep the price of the key raw material low.

According to Musk, despite posting record profits in the last quarter, the hikes are not unreasonable. The new prices take into account the anticipated supplier and logistics cost growth expected to happen over the next six to 12 months.

Credit Suisse (CS) has already raised concerns that the price hikes could destroy demand. Nevertheless, Rivian Automotive (RIVN) CFO, Claire McDonough, has said that customers are opting for the most high-end models amid the price rise.

Wall Street’s Take

Wedbush analyst Daniel Ives has reiterated a Buy rating on Tesla with a $1,000 price target, implying a 56.6% upside potential. Yesterday’s all-hands Twitter shareholders meeting could shed more light on the proposed $44 billion takeover of the social media giant. Delays in the proposed takeover have weighed significantly on Tesla stock.

The Street is optimistic about Tesla stock going by the Moderate Buy consensus rating based on 16 Buys, eight Holds, and six Sell ratings. The average Tesla price forecast of $917.1 implies a 43.6% upside potential from current levels.

Bloggers’ Opinion

TipRanks data shows that financial bloggers’ opinions are 74% Bullish on Tesla, compared to a sector average of 68%.

Key Takeaway

The decision to hike car prices could help safeguard Tesla’s profit margins amid rising production costs. However, the hikes could also affect demand for high-end cars amid runaway inflationary pressures worldwide.

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