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.

Created with Highcharts 11.4.3Tesla PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

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%.

Created with Highcharts 11.4.3Pilbara Minerals PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

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

Female miner smiling at a mine site.
Resources Shares

Up 60% this year, this ASX 200 mining stock just smashed production records

Production surge headlines quarterly results.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Resources Shares

After lifting its price target, Macquarie now expects 36% upside from this ASX mining stock

The precious metals producer released better-than-expected production guidance.

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »

Man with rocket wings which have flames coming out of them.
Resources Shares

Why Macquarie expects this ASX All Ords copper stock could surge 38%

With costs coming in below expectations, this ASX All Ords copper stock could rocket higher over the coming months.

Read more »

Iron ore price Vale dam collapse ASX shares iron ore, iron ore australia, iron ore price, commodity price,
Resources Shares

Major miners up as China announces new mega project

Can a new mega-dam absorb iron ore oversupply?

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
Broker Notes

Leading broker has just downgraded BHP shares. Is it time to sell?

Macquarie sees little upside. But why?

Read more »

A young woman wearing a blue blouse with white polkadots holds her phone up with an intrigued and happy look on her face as she reads some news.
Resources Shares

3 reasons why the BHP share price could be a buy

Here are my optimistic thoughts on BHP.

Read more »

mining asx shares represented by miner writing report on clipboard
Resources Shares

This ASX 200 miner is ramping up copper output as prices reach all-time highs

Copper production leads quarterly update.

Read more »