Tesla Sinks as Price Cuts Signal a Ceiling for Costlier Models

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Tesla announced a $2,000 reduction in the price of all vehicles to partially offset expiring tax credits, but the move wasn't enough to stop Wall Street from punishing the company today.

Under a major tax overhaul passed by the Republican-controlled U.S. Congress late previous year, tax credits that lower the cost of electric vehicles are available only for the first 200,000 such vehicles sold by an automaker.

Before January 1, Tesla buyers were entitled to a tax credit of $7,500.

Tesla claimed to have delivered 90,700 vehicles in their fourth quarter, short of Wall Street projections for the company.

Rows of new Tesla Model 3 electric vehicles are seen in Richmond, California. The price for this rear-wheel-drive drive model was briefly cut to $45,000 in October, but it was increased by $1,000 just days later. The bonds slipped 2 cents on the dollar to 85.5 cents, the largest drop since September, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Gary Gastelu is FoxNews.com's Automotive Editor.

The company said more than three quarters of Model 3 orders in the last three months of the year were from new customers, rather than reservation holders, suggesting many consumers are still waiting to buy versions of the sedan at the long-promised $35 000 sticker price.

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The company said it would begin delivering Model 3s to Europe and China in February, in order to compensate for troubles at home. 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".

Musk has been under intense pressure to deliver on his promise of stabilizing production for the Model 3, which is deemed crucial for easing a cash crunch and achieving long-term profitability.

The Model 3, Tesla's mass market vehicle, saw sales of more than 145,000 past year, the company said.

The $7,500 federal tax credit for electric cars was cut in half as of Tuesday. Worldwide deliveries to Europe and China will start next month and it will launch a right-hand drive version later in the year.

Tesla shares fell as much as 10 percent to $298.80 as of 10:30 a.m. Wednesday in NY.

Analysts cited by Reuters speculate that Tesla's decision to cut prices is aimed at mitigating the loss of the credit and maintaining the true price tag of the vehicles, including the problematic Model 3.

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