Tesla (TSLA) has built its empire on two vehicles, the Model 3 and the Model Y. Together, they made up more than 95% of Tesla’s global deliveries last year, powering the company’s growth for nearly a decade. But now, the circumstances look different. Demand growth is slowing, competition is heating up, and Tesla is cutting prices to stay in the game.
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The company’s latest move, launching the Model Y Standard at $39,990 in the U.S. and Europe, tells us that there has been a shift from offense to defense. The strategy is now to protect volume even if margins take a hit. With Chinese rival BYD (BYDDY) (BYDDF) stepping directly into Tesla’s territory, the battle for the midsize electric SUV market has never been sharper.
Moreover, Tesla’s pricing strategy could be its strongest weapon. While BYD’s new Sealion 7 matches the Model Y on performance and comfort, it sells for about $60,000 in the U.K., roughly 30% more than Tesla’s new entry-level offering. That reversal of roles, where Tesla is now the more affordable brand, underscores how quickly the power dynamics have changed.
BYD Feels the Pressure
BYD once had the cost advantage thanks to its vertically integrated supply chain and low-cost lithium iron phosphate blade batteries. But shipping expenses, regulatory hurdles, and packaging costs are eroding that edge. According to S&P Global Mobility, the cost of BYD’s batteries in China dropped to just $52 per kilowatt-hour last year, a figure that would have seemed unbeatable just two years ago.
Now Tesla is closing the gap. Its ability to trim costs across production lines gives it a structural advantage in global markets where BYD faces extra barriers. After slashing prices in 2023, Tesla’s deliveries jumped 38% year over year to 1.81 million vehicles. Even if only half of that gain came at BYD’s expense, the result is clear. Tesla is still dictating the pace of the global EV race.
Still, this comes at a cost. BYD’s Sealion lineup, its second-best seller, could see margins squeezed if it tries to match Tesla’s prices. Tesla’s massive scale and global reach allow it to absorb that impact, while BYD may have to make tougher choices about profitability versus market share.
Tesla’s Valuation Faces a New Reality
For all its pricing agility, Tesla’s valuation remains its biggest question mark. The company’s market value hovers around 1.4 trillion dollars, more than ten times that of BYD, but its fundamentals are shifting. Its gross margins have fallen from nearly 30% in 2021 to just 17% in the latest quarter, with automotive sales still driving three-quarters of total revenue.
That poses a dilemma for investors. Tesla’s sky-high valuation has long been fueled by the promise that it is more than a carmaker. It is an AI powerhouse, an energy innovator, and a robotics pioneer. Those ambitions may be real, but for now, its profits still come largely from selling two cars in an increasingly crowded field.
Moreover, its latest price cuts, while smart tactically, could further compress margins and challenge the narrative of endless high growth. The company that once made EVs a luxury statement is now making them affordable to survive, a pivot that investors must reckon with.
Key Takeaway
Tesla can still move markets with a single pricing decision. But the question that hangs over its trillion-dollar valuation is whether it can evolve beyond the Model 3 and Model Y before its edge erodes. For now, Elon Musk’s company is still the pace-setter in electric vehicles, but it is doing so on thinner margins, fiercer competition, and rising pressure to prove that its trillion-dollar dream has more than two wheels.
Is Tesla Stock a Buy, Hold, or Sell?
Wall Street remains divided on Tesla’s next move. Based on 37 analyst ratings in the past three months, the consensus sits at Hold. 15 analysts call the stock a Buy, 13 recommend a Hold, and nine say to Sell.
The average 12-month TSLA price target stands at $365.31, implying about a 16.3% downside from the recent price.
