What can ASX lithium share investors learn from Tesla discounting its cars?

Owners of ASX lithium shares may want to know that carmaker Tesla Inc (NASDAQ: TSLA) has been discounting its cars to entice potential buyers.

Does that mean it’s bad news for the lithium price and the lithium players? Let’s have a look at what’s going on.

Tesla discounts cars

The Tesla share price has had a terrible time this year. The electric carmaker has dropped 37% in December 2022 alone. It’s down 50% over the past six months and it has fallen 69% since the start of the year.

As reported by CNBC, Tesla has started offering discounts of US$7,500 on some of its “high-priced” electric vehicles in the US last week. This was reportedly double what the previous incentives were. The idea was that it would encourage customers to take deliveries.

Tesla is also reportedly offering credits in both Canada and Mexico, and it has also cut the price of cars in China.

CNBC reported that the “price cuts on Tesla’s Model 3 sedan and Model Y crossover are seen as a sign of weakening demand.”

Plus, it is offering 10,000 miles of free charging at Tesla’s supercharger for customers that take delivery of a new Tesla in December.

What does this mean for ASX lithium shares?

Names like Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE), Liontown Resources Limited (ASX: LTR) and Mineral Resources Limited (ASX: MIN) aren’t the ones selling the cars. But, the price of lithium is extremely important for how much profit they make.

If mining costs don’t really change in the short term, but the resource price is jumping higher, then most of the new revenue can go straight to net profit (aside from paying more to the government). But, it can work the same on the way down – lower revenue largely wipes off net profit.

How much demand there is for lithium by the electric vehicle makers can then influence how much demand there is for lithium.

Since 9 November 2022, the Pilbara Minerals share price has dropped 30%.

In mid-December, Pilbara Minerals reported that it sold two cargoes for a combined total of 10,000 dry metric tonnes (dmt) at an average price of US$7,552 per dmt. The equivalent SC6.0 price negotiated equates to a price (inclusive of freight), CIF to China of US$8,299 per dmt. This represented a low-digit decrease of the price compared to the mid-November auction.

Does this represent a peak? Is the price about to start sliding back?

Maybe not yet. On 21 December 2022, Pilbara Minerals reported that it had “achieved a significant improvement in pricing outcomes with its major offtake customers” after completing price reviews. The revised offtake pricing applies “for all shipments to the company’s major offtake customers falling within December 2022 and onwards.”

Based on the market’s pricing reference data, average pricing across major offtake customers would equate to approximately US6,300 per dmt.

Foolish takeaway

While it’s hard to say what’s going to happen next, it’s probably not a good sign for the lithium price or the ASX lithium share sector that Tesla is lowering its car prices, although Tesla doesn’t represent the whole industry. However, with how far the Pilbara Minerals share price has dropped, it could represent long-term value at this level.

The post What can ASX lithium share investors learn from Tesla discounting its cars? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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