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"Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected," the company said in a blog post.
But that wasn't all, the announcement was accompanied by Musk warning he doesn't "expect to be profitable in Q1 but profitability in Q2 is likely." That was a change of tone from his January conference call, when he said he was "optimistic about being profitable in Q1 and all quarters going forward."
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The reception on Wall Street, at least among investors, was a bit chilly, with shares trading lower by more than 4% Friday morning. But analysts were mixed, with some seeing the glass half empy and others seeing it as half full.
Check out what Wall Street analysts are saying about Thursday evening's announcement:
Goldman Sachs: $35k Model 3 implies lower demand for higher priced variants; potential margin compression with program mix shift
Price Target: $210
Rating: Sell
"While we believe the introduction of the $35k Model 3 may be positive for overall program demand — which we and investors have been questioning given the phase out of the EV tax credit in the US and price elasticity of demand for the higher priced vehicle variants — we also think this will drive a downward mix impact for Model 3 margins." analyst David Tamberrino said.
JMP: Tesla Drops Prices, and Its Dealership Network Too
Price Target: $406
Rating: Market Ouperform
"Tesla has come up with a novel approach to hitting its long-anticipated $35,000 price point for its Model 3, which consists of largely shutting down its sales network," JMP analyst Joseph Osaha said.
"That, combined with offering a variant of the Model 3 that appears to be quite stripped down, moves the inexpensive Model 3 solidly into the mass-market segment of the auto business."
Osaha says the $35,000 sedan stacks up "quite nicely" against the competition, but that switching to an online sales model will lead to the automaker "surrending some of its customers."
Wedbush: Drumroll....$35k Vehicle Unveiled-Potential Game Changer for Musk & Co.
Price target: $390
Rating: Outperform
"This news is coming much earlier than expected and earlier than our expectations of the July/August range; in our opinion the company would not be rolling out this much anticipated version of Model 3 unless it could be done with GM that approach company targets, a key focus of the Street," analyst Dan Ives said.
He added: "In our opinion this announcement is a potential game changer for Musk and Tesla as the $35k vehicle at profitable margins is a linchpin to the bull thesis in the name and we view this news as a major step forward. While there are still questions that need to be answered around logistics and delivery, combined with the margin profile on this model, we believe this strategic shift was the right move at the right time for Tesla, although the stock will be a 'prove me' name for the next 6-9 months."
Berenberg: Moving down the cost curve
Price target: $500
Rating: Buy
"We maintain our bullish view on Tesla, as the announced changes and earlier-than-expected arrival of the $35,000 Model 3 demonstrate its determination to drive down costs for its vehicles," analyst Alexander Haissl said.
"The debate that the measures are a result of weakening demand are exaggerated and taken out of proportion, as we think the market underestimates the total addressable market for the Model 3 once all levers have been pulled."
Morgan Stanley: Cutting Price, Closing Stores, Moving the Metal
Price target: $283
Rating: Equal-weight
"While this may stabilize the air-pocket in Q1 sales, we're concerned it’s a sign of a brand that may be, at the margin, losing its halo of exclusivity," analyst Adam Jonas said. "We think the bears have more material to work with than bulls here."
Addtionally, he believes getting rid of retail stores could "trigger a large amount of discussion with state and national regulatory bodies" and lead to "a number of legal challenges."
Jonas also thinks raising the required downpayment from $1,000 to $2,500 could act as a "pseudo-capital raise."
Macquarie: What the $35K Model 3 Means
Price target: $430
Rating: Outperform
"We maintain our view that Europe & China demand should drive sales (once logistics issues are addressed) but now also expect the $35k Model 3 ($31,250 with US federal subsidy) to drive unit demand in the US," analyst Maynard Um said.
"While we expect this to come at a lower gross margin, lower store opex should offset if the company gets enough scale. We think it’s important to note what a big milestone a $35k Model 3 is, now coming in below the base price for ICE models like the BMW 3-series & Audi A4."
JPMorgan: $35K Model 3 Debuts Alongside 2nd Sweeping Restructuring (Store Closures); More S & X Price Cuts Hint at Softer Demand
Price Target: $230
Rating: Underweight
"We do not think this was the original plan envisaged by Tesla management and bullish investors, but rather is instead suggestive of what we have long feared — that the Model 3 would prove more difficult and more expensive to manufacture than was originally projected, such that the firm would struggle to earn its targeted above industry average 25% gross margin as it transitions toward industry average pricing," analyst Ryan Brinkman said.
"And why would Tesla today be able to generate substantially above industry average gross margin on mass-market models, given it lacks the purchasing power and the ability to amortize fixed development costs across as many units as its much larger global automaker peers, and given the added cost of electric propulsion?"
