thanks to our friends at the Motley Fool For sponsoring this video visit full.com asym for the top 10 stocks to buy right now Tesla continues to slash prices not only did it cut prices of the model S and model X over the last week it cut prices for full self driving the beta version of the autonomous driving technology this was a big shock because the thesis for a lot of investors with Tesla was that the company could actually sell vehicles at a very low margin and make that up with high margin software in the future but if you're cutting the prices for your software that could potentially undercut that thesis so I want to go through exactly what we know right now and then what to look for in earnings over the next few quarters my name is Travis William thanks for watching asymmetric investing Please Subscribe here on YouTube for all my content and if you like this video check out my newsletter asymmetric investing in the show notes and I'll just go to a couple of articles that show exactly what went on I'll start with the price cuts of the model S and model X there were a number of different price Cuts but I'm going to highlight this one right here the dual motor all-wheel drive now 75 000 for the model S that does get it under the threshold to get the full tax credit for electric vehicles and then the model X the dual motor all-wheel drive is eighty thousand dollars again under that eighty thousand dollar Mark to get the tax credit so that is a benefit for consumers on top of the cost reductions that we're talking about right here but look at how big a cut this is twenty thousand dollar cut for the tri motor all-wheel drive almost a twenty thousand dollar cut for the model X it's hard not to think that margins for these vehicles are going to go down dramatically and one of the things that we have seen from Tesla over the last four quarters is that margins are dropping as they're cutting prices for their vehicles that is the reason that profitability is not as good margins both on a gross margin standpoint an operating margin standpoint are not as good as they once were on the FSD side the price has gone from fifteen thousand dollars to twelve thousand dollars the enhanced autopilot price did not change that's still six thousand dollars but a big reduction in FSD there's probably a couple of reasons for that one it doesn't seem like adoption is nearly as high on a per unit basis as it once was and Tesla theoretically needs the video miles to improve FST now that they're moving on to version 12 which is a complete rewrite of the FSD software now a lot of people who are bullish on Tesla uh think that cutting prices is really bullish no matter what happens but the reality is that margins have been coming down for a year now that's because the price of particularly the model 3 and the model y have been coming down at the same time inventories have been going up so that indicates that there is actually a demand problem there's not enough demand at the previous prices so the company's having to reduce prices to drum up more demand now is the exact same thing happening for the both the model S and x and the FSD software I think that does appear to be the case and so over the next four quarters what you should watch is gross margin operating margin and then net income margin I think that we're going to see all three of those things decline the indicators are there the trends are there these price reductions can only go so far before they end up eating away all of your profitability and I think that's where Tesla is headed but we'll see over the next few quarters what did you think of these price reductions leave your comments in the comment section below don't forget to subscribe to asymmetric investing and thanks for watching everybody see you here next time
