Why Tesla Stock Pumped the Brakes Monday

What happened

Tesla (TSLA -4.69%) stock has been on a tear to start the year. After a 65% correction in 2022, Tesla shares have soared 40% so far in 2023. Its winning streak was put on hold today, though, with the stock dropping more than 5% Monday morning. As of 12:25 p.m. ET, the shares were still down 3.1%.

So what

After Tesla cut prices on its Model Y SUV by as much as $13,000 earlier this month, Ford has announced a price cut of its own on its competing Mustang Mach-E SUV. Ford is dropping the cost of a Mach-E by as much as $5,900 per vehicle, depending on the model, according to Reuters. The move has Tesla investors worried that a downward spiral in electric vehicle (EV) prices will erode Tesla’s profits.

Image source: Tesla.

Now what

Tesla wants the lower prices to help spur demand for its EVs. But this also is a way to leverage its leadership position and put pressure on competitors like Ford that are just starting to gain traction. Ford doubled its Mach-E sales in December 2022 compared to 2021, bringing its total for the year to almost 39,500 vehicles, and it would surely prefer to get higher prices for them.

But Ford Chief Customer Officer Marin Gjaja said in a briefing to media that the new price cuts mean not all models of the Mach-E will be profitable for the automaker. That’s just what Tesla wants to hear.

Tesla reported a record profit in the fourth quarter of 2022 and seems willing to trade some of that profitability for higher sales volume. Competitors won’t be able to absorb losses to build their customer bases for too long. While Tesla shares are pausing from their recent surge today, the long-term strategy seems to be working. That makes any meaningful pullback a good time to start a position or add shares in the sector leader.