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

Do cheaper lithium cars mean a cheaper lithium price?

| More on:
Three miners stand together at a mine site studying documents with equipment in the background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Some ASX lithium shares have fallen significantly, and so have Tesla shares
  • Tesla has been cutting prices on its cars
  • This might be a negative signal for the future of the lithium price

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.

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.

More on Resources Shares

A miner holding a hard hat stands in the foreground of an open cut mine
Resources Shares

A close look at BHP shares. What is the mining giant's next move?

Let's take stock of what the experts think.

Read more »

Miner looking at a tablet.
Resources Shares

Short bets on Pilbara Minerals shares are declining. Is now the time to buy?

Could the trade be unwinding?

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

'I hate what I have done': Mineral Resources share price down as Ellison laments actions

Managing Director Chris Ellison says he deeply regrets the impact of his 'error of judgement'.

Read more »

A man in shirt and tie uses his mobile phone under water.
Resources Shares

The Lake Resources share price is sinking yet again. Here's why

The longer-term downtrend continues.

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

With a P/E ratio of 6, is the Fortescue share price a bargain?

Let’s dig into whether Fortescue shares are good value or not, in my eyes.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Resources Shares

Down 15% this year, where's the next stop for Rio Tinto shares?

Where to next for the miner?

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

Can Pilbara Minerals shares cross the $3 mark?

Lithium stocks continue to split opinion.

Read more »

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Resources Shares

'Encouraging signs' for Fortescue shares heading into 2025

This leading investment expert forecasts brighter days ahead for Fortescue shares.

Read more »