Tesla cuts prices on poor Q4

Tesla CEO Elon Musk is puzzled

Under a major tax overhaul passed by the Republican-controlled U.S. Congress late a year ago, tax credits that lower the cost of electric vehicles are available only for the first 200,000 such vehicles sold by an automaker. This number is comprised of 63,150 Model 3 (signifying a 13% growth over Q3), 13,500 Model S, and 14,050 Model X vehicles.

Musk previously stated that Model 3 reservations had surged to over half a million, but on a recent conference call he went back on this statement saying: "To be more accurate, there have been 518,000 gross reservations for Model 3 and then we have 455,000 net reservations". The new price is still well above a long-promised $35,000 Model 3 that isn't expected to be available earlier than spring, according to Musk.

The $44,000 Model 3 is seen is the most important auto for Tesla, with founder Elon Musk touting it as a more affordable vehicle.

Gary Gastelu is FoxNews.com's Automotive Editor.

"The price cut is what's driving the stock lower, as it openly acknowledges the sunset of subsidy dollars is a material headwind", he said. But some bearish investors are likely interpreting it as a move to stimulate demand, said Wedbush analyst Dan Ives.

Starting today, the company will be reducing its price for Model S, Model X and Model 3 vehicles in the U.S. by $2,000, it said.

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Moving beyond the success of Q4, we are taking steps to partially absorb the reduction of the federal EV tax credit (which, as of January 1, dropped from $7,500 to $3,750).

Deliveries to customers in Europe and China will begin in February, the company said.

The company's deliveries for the full year matched Wall Street estimates, but its figures for the fourth quarter didn't reach expectations.

The company said in its third quarter results that it would focus in the fourth quarter on further increasing its production rate and there were indications that Wall Street had been expecting higher numbers. Craig Irwin, an analyst with Roth Capital Partners, noted that Tesla's price adjustments on its vehicles are not helping TSLA stock either.

In Q4, we produced and delivered at the rate of almost 1,000 vehicles per day, setting new company records for both production and deliveries. The company said the remaining tax credits combined with not having to fuel up at the gas pump and lowered maintenance costs "means our vehicles are even more affordable than similarly priced gasoline vehicles".

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