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If Tesla is facing ‘demand destruction,’ where are the demand levers?

Many industry watchers are claiming Tesla is facing “demand destruction,” but if that’s the case, why isn’t Tesla pulling on some demand levers?

In a new note to clients this week, Morgan Stanley analyst Adam Jonas, one of the top analysts covering Tesla, noted that he believes Tesla is experiencing “demand destruction” at the margin:

Is Tesla experiencing demand destruction? Very likely, at the margin, although this would be reflected in shorter lead times and price declines in coming months as even EV customers may be feeling the effect of inflation fatigue/buyers strike.

He lowered the firm’s expectations for the company.

Another analyst who has been tracking Tesla’s backlog of orders believes that it just hit an almost two-year low:

This would indicate that Tesla’s demand has significantly slowed down, but as we previously reported, wait time tracking can be deceiving as Tesla shifts production for different regions.

Is Tesla’s demand a problem?

If demand were a problem for Tesla, we would be starting to see some demand triggers being pulled, which is not the case.

The biggest one to pull is generally pricing. Tesla’s prices have been going straight up over the last two years, and its gross margin on vehicles is at an all-time high.

The automaker could afford to reduce prices a little, which would be a significant demand driver, but it has yet to happen.

But there’s another complication now: the new EV tax credit.

Tesla buyers can technically regain access to the $7,500 tax credit if they take delivery next year. There are many factors that restrict access to the credit, but it could still have a significant impact on demand for the lower-priced Model 3.

As we previously reported, Tesla is not accommodating buyers who are eligible like other automakers are, and therefore, it might be experiencing some cancellations as contract time runs out and some buyers decide to wait until next year.

Electrek’s Take

In short, I believe that it’s not worth worrying about Tesla’s demand until you start seeing the automaker pull on some demand levers.

But even then, those demand levers are likely going to be quite successful and fix the issue.

If Tesla really starts to see a slowdown in demand, especially in the US, I think we could see the automaker finally launching a standard-range Model Y in the market and there would likely be unlimited demand for that, especially with the tax credit.

What do you think? Let us know in the comment section below.

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