Tesla’s swelling inventory suggests Musk will keep cutting prices

In the two weeks since Tesla alarmed investors by revealing how much of a toll discounts were taking on its profit margins, Elon Musk has bumped prices back up across the lineup.

But the April 20 increases on the Model S and X and this week’s tiny markups on the Model 3 and Y probably aren’t all-clear signals indicating Tesla’s pricing will stabilize for long. The dynamics that led the company to slash the costs of its vehicles the last few months — more supply than demand — appear to have stubbornly stuck around.

Blogs that aggregate vehicle listings on Tesla’s website are finding that inventory has kept building — in the US, Europe and globally. @TroyTeslike, a Twitter user who counts many analysts and investors among his almost 110,000 followers, posted this week that Tesla has a backlog of around 72,000 orders, a fraction of the 476,000 he calculated as of late July last year.

“Tesla is clearly transitioning from being supply constrained (where delivery volumes grow in line with production capacity and prices increase) to being demand constrained (where prices fall to stimulate demand and production outpaces delivery),” Toni Sacconaghi, a Bernstein analyst with a sell rating on the stock, wrote in a May 1 report. One of Tesla’s more bullish analysts has arrived at a similar conclusion. Alexander Potter of Piper Sandler just cut his price target to $280 — still the fourth-highest among analysts tracked by Bloomberg — to reflect his concern that the carmaker’s valuation might languish for a few months because of falling prices and margins.

“Wait times haven’t spiked meaningfully, so Tesla may cut prices further,” Potter wrote this week, still maintaining his buy recommendation.