Personal Finance

Why Tesla Stock Was Slammed Friday

A red Tesla Model 3 in a desert setting

What happened

Shares of electric-car company Tesla (NASDAQ: TSLA) fell sharply on Friday, declining as much as 8.7%. As of 11:25 a.m. EST, the stock was down 7.4%.

The pullback in Tesla shares follows the company's launch of its most affordable Model 3 yet, a major change to its sales strategy, and news from CEO Elon Musk that the company doesn't expect to be profitable in its first quarter.

A red Tesla Model 3 in a desert setting

Model 3. Image source: Tesla.

So what

Tesla finally announced the long-awaited $35,000 version of its Model 3 on Thursday. However, bringing the vehicle to market was only possible with some big changes to the company's business. Tesla announced it was shifting sales entirely online while closing many of its stores over the next few months.

"Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected," Tesla said in a blog post on Thursday afternoon.

Musk also notably said in a call with reporters on Thursday that he doesn't expect to be profitable in Q1, citing one-time charges and costs associated with shipping vehicles to China and Europe. Previously, Tesla had said there was a chance the company could post a small profit during the quarter.

Now what

From here, investors will want to watch to see how the availability of lower-cost Tesla vehicles affects the company's profitability. In addition, management's decision to close stores and shift sales entirely online is notably unchartered territory for an auto company Tesla's size. Will demand be sufficient under this new sales approach?

Musk says he still expects Tesla to be profitable in its second quarter.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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