Tesla (NASDAQ:TSLA) is one of the most important stocks in the market. That means its price movements can play a great deal into how many investors’ portfolios perform on a daily basis, given the weighting of TSLA stock in many top index funds.
Accordingly, today’s dip of more than 3% in TSLA stock is concerning for many direct and indirect investors. The electric vehicle (EV) maker has been on a downward trajectory of late, with recent deliveries coming in well below estimates, signaling poor demand. However, today’s decline appears to be more related to a Reuters report.
The report in question suggests that Tesla has scrapped its entry-level vehicle project. These cars, which were expected to be produced under the moniker Model 2, were set to have a starting price of around $25,000. However, with this model now potentially scrapped, many in the market are clearly pricing in more downside pressure for Tesla.
Let’s dive into what to make of this report — and why investors continue to sell TSLA stock today.
TSLA Stock Sinks Again on Key Report
Today’s report, which cites two unnamed sources close to the project, confirms the concerns of certain investors who thought this project may be doomed from the start.
Tesla got its start by producing high-end EVs with incredible performance specs that captivated many early investors. Whether we’re talking about the Roadster or the Model S, I have to say, Tesla made cars that were nice to look at. Likewise, later models like the X and Y and lower-priced Model 3 still sit in the “premium” or “luxury” end of the market due to their price tags.
Prices have certainly come down, but not enough to challenge Chinese EV makers that are producing much more affordable vehicles, bolstering demand. Tesla’s Chinese business is slowing very quickly. Meanwhile, U.S. EV buyers have been afforded a number of other options at similar price points.
So far, Musk’s strategy of cutting prices for his existing lineup isn’t working like many had hoped. The Model 2 was supposed to allow for higher prices for other Tesla models and generate a mass-market opportunity at the lower end of the market. With the project now appearing to be out of the equation, bulls have one less catalyst to rely on when putting forward a “total market domination” thesis for Tesla.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
