Prices for new and used Tesla vehicles have been all over the place in recent months, leaving bulls and bears with plenty of data to fuel their never-ending argument about the electric vehicle maker.
The price debate goes something like this: cutting prices is a sign of weakness, not cutting prices is a sign of strength, falling used car prices are a sign of weakening demand, and no Tesla car ( ticker: TSLA) cheaper has pushed demand to the moon.
Price, of course, is an important signal to car buyers and investors. Tesla’s near-unprecedented price cuts in early 2023 have sent waves across the new and used car landscape. As things settle down and investors can look at data from the past few months, it looks like Tesla’s price cuts have been good for the company and the stock.
The average price of a used Tesla has dropped more than $7,000, or 16%, over the past five months, according to data from automotive information provider iSeeCars.com that was prepared for barron’s
This drop seems shocking, but Tesla cut the prices of new vehicles in the US by up to 20% in early January. Used cars track, to some extent, they always track the price of new cars.
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Investors should pay attention to the spread between new and used cars. A widening spread may indicate that used cars are the best deal and that new car prices should drop further. When the spread narrows it means demand is strong.
Investors should not forget the post-pandemic situation that caused some used cars to sell for more than new cars. The production of new cars was less and if a buyer wanted a car he had to pay for it. Demand exceeded supply.
The spread between a new and used Tesla has increased, slightly, compared to recent months, according to data from iSeeCars.com. The average price of a one- to five-year-old used Tesla listed on the site is about 75% of a new Tesla. In November, this ratio dropped below 70%.
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Right after the drop below 70%, Tesla offered US buyers $3,750 off for delivery by the end of the year. Demand slowed at the end of the year because buyers were waiting for the new shopping tax credit that was passed as part of the Inflation Reduction Act.
This incentive went into effect on January 1st. Tesla did not respond to a request for comment on pricing.
The used car data simply shows that demand for new Teslas is good right now. This is how it should be. Tesla CEO Elon Musk said in January that the price cuts led to a big boost in order activity.
Wall Street expects Tesla to deliver about 420,000 units in the first quarter. This is a record and an increase of about 15,000 compared to the fourth quarter of 2022.
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Future Fund Active ETF
( FFND ) co-founder Gary Black believes Tesla will sell about 424,000 units in the first quarter. With the way Musk has been talking about demand, “we doubt Tesla will miss Q1 volumes or lose a lot of credibility,” Black says. “It’s a pivotal quarter for Tesla.”
Delivery results should be published on Sunday, April 2. Tesla typically reports quarterly deliveries on the second day of the new quarter.
All eyes will be on this figure. If the price of used cars is any indicator. It should be fine. If so, the bulls will have once again won the post-price cut demand debate. There will be other rounds for the bulls and bears.
Tesla shares were up 1.4% in midday trading Thursday. The
S&P 500
i
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Nasdaq Composite
have increased by 0.5% and 0.7%, respectively. Tesla shares are up about 60% year to date. Shares have recovered after falling about 65% in 2022.
Write to Al Root at allen.root@dowjones.com
