Tesla Inc. (TSLA.O) plunged in early trading after delivering fewer Model 3 sedans than analysts expected in the fourth quarter and cutting prices to partially make up for the federal tax credit that’s been halved in the U.S.

Key Insights

Tesla announced a US$2,000 price cut on each of its vehicles -- the Model 3, Model S and Model X -- to help make up for U.S. buyers being able to get only a US$3,750 federal tax credit for the next six months. It will be a few more weeks before Tesla confirms whether it was profitable for a second consecutive quarter, but the company’s ability to sustain a high level of production -- it built 61,394 Model 3s and 86,555 vehicles total in the last three months -- will go a long way toward that goal. Chief Executive Officer Elon Musk now plans to turn attention to filling Model 3 orders in Europe and China starting in February, which could help offset the loss of some U.S. demand now that customers can no longer get the full US$7,500 federal tax credit. Tesla fell just short of its target to deliver 100,000 of its Model S and Model X vehicles for the year, selling 99,394 units.

Market Reaction

Tesla shares fell as much as 8 percent to $306 as of 8:45 a.m. Wednesday in New York, before the start of regular trading. The stock advanced 6.9 per cent last year while most other automakers slumped.