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Musk Cuts Model S Price... Again

Tesla CEO Elon Musk announces a second price cut to Tesla's Model S in as many days.
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Yesterday, Tesla generated headlines by reducing prices on the Tesla Model S by $3,000. Now, Tesla CEO Elon Musk says a second price reduction is on the way just one day later. 

"The gauntlet has been thrown down! The prophecy will be fulfilled. Model S price changes to $69,420 tonight!" Musk tweeted.

Following yesterday's price reduction, the Model S currently starts at $71,990 as of the time of writing. If Musk follows through on the tweet, the base price will come down by another $2,570 or 3.5%.

A few hours before Musk's tweet, Lucid Motors announced a starting price of $69,900 (post-incentives, which Tesla is no longer eligible for) and projected range of 406 miles for the lowest-trim all-electric Lucid Air, possibly nudging Musk's move. This variant of the Lucid Air, however, is not expected to begin deliveries until early 2022.

Over the last few quarters, Tesla has likely been selling around 7,500 Model S vehicles per quarter. The aggregate two-day price reduction of $5,570 could therefore present a gross profit headwind of about $42M. However, some customers may elect to spend more on options due to the lower base price, and Tesla is likely to sell some additional Model S vehicles due to the price reduction. 

Hypothetically, if the price cut generates an additional 2,500 Model S sales per quarter at an average selling price of $85,000 and 20% gross margin, Tesla would end up generating an additional $42M of gross profit on the additional sales, offsetting the gross profit hit from the price cut. 

Tesla posted gross profits of $1,267M and GAAP net income of $104M in Q2-20.

For more on Tesla, including questions for Tesla's upcoming Q3 earnings call, please see the included video and be sure to follow Tesla Daily on The Street.

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Disclosure: Rob Maurer is long TSLA stock and derivatives.