Tesla’s Price Cuts Show It’s Feeling the Heat

ETFs with Tesla exposure jump, as global competition intensifies.

Reviewed by: Ron Day
Edited by: Ron Day

Tesla Inc. investors are enjoying what has been a rare treat over the past year—back-to-back gains in their holdings in the world’s largest electric vehicle maker. 

Exchange-traded funds with large exposure to Tesla shares have been rising this year after the company cut prices globally up to 20% in certain markets, Reuters reported last week. They jumped further today after indications that the price cuts fueled a 76% gain in sales between Jan. 9 and Jan. 15, according to China Merchants Bank International data cited by Reuters. 

These recent gains may not be enough to assuage long-term concerns about increased competition at Tesla, ETF.com Senior Analyst Sumit Roy noted. Citing S&P Global, he said the company’s market share is forecast to drop to 20% over the next few years. 

“Tesla was the obvious way to invest in the growth of EVs, but it’s no longer clear, especially since the stock is trading at such a high valuation in a market that values profits over growth,” he noted.“Tesla’s price cuts suggest that competitors are starting to successfully challenge the company.” 

The fund with the largest exposure to Tesla stock, the GraniteShares 1.25x Long TSLA Daily ETF (TSL) jumped 6.9% Tuesday, for a 26% gain this year. Still, the so-called single stock ETF, which aims to outpace the growth in Tesla stock, has dropped 65% since it started trading in August. 

Tesla shares rose nearly 7% on Tuesday, adding to this year's gains.  

The gains come after a wretched 2022 saw the company’s shares tumble 68%, among the worst performers in the S&P 500. While markets in general plummeted last year, Tesla had it worst than most due to fears of a slowdown in China after the company halted production in Shanghai as COVID-19 cases spread.The company warned then it would miss its sales goal. 

Tesla has also cut prices in the U.S., where it’s fighting to keep market share from new EV introductions from rivals like Ford Motor Co., General Motors Corp. Hyundai Motor Co. and Kia Corp. While Tesla’s piece of the EV market is shrinking, it still has a 65% share, according to S&P Global

The Vanguard Consumer Discretionary ETF (VCR) has 8.5% of its holdings in Tesla stock and has gained 8.8% this year. A fund started by popular YouTube personality Kevin Paffrath, The Meet Kevin Pricing Power ETF (PP), has 26% of its holdings in Tesla and has risen 4.4% this year. 

Contact Ron Day at [email protected]  

Ron Day is deputy managing editor at etf.com. He covered business and financial news at Bloomberg News for 20 years, was senior editor at ESG news outlet Karma Impact, and covered general news at several New Jersey daily papers. Day's freelance work has been published in AARP.com, Investopedia.com and BigThink.com.