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Analyst: Tesla's price cut signals demand concerns

Tesla Inc.'s price reduction and unsold Model 3 vehicles are a sign of demand concerns, according to a research note from financial services firm Cowen.

Tesla announced on Jan. 2 that it was cutting its vehicle prices by $2,000 to offset the federal electric-vehicle tax credit that began phasing out for the automaker on Jan. 1. Tesla consumers now can only receive $3,750 of the original $7,500 electric-vehicle tax credit.

The news led to Tesla shares dropping 8.1% when the market opened on Jan. 2.

Senior research analyst Jeffrey Osborne wrote the price reduction likely indicates "a demand peak in the U.S. as the early adopters have largely been exhausted."

The California-based automaker reported deliveries of 63,150 Model 3 vehicles in the fourth quarter, which was above Osborne's estimate of 60,000 but below Wall Street estimates of 63,698.

Although Tesla produced 61,394 Model 3 vehicles in the fourth quarter, Osborne wrote this implies that the unsold Model 3 inventory rose from less than 2,000 to more than 7,000 cars.

Approximately 25% of order configurations came from existing reservations, which suggests that the bulk of the remaining net reservations are waiting for the $35,000 model that has not yet been delivered, Osborne wrote.

Tesla also announced it will begin vehicle deliveries in Europe and China in February, where it will face more competition from other automakers with electric options, including Jaguar and Audi AG. Porsche and Mercedes-Benz are also set to launch electric vehicles later in 2019, Osborne wrote.

Osborne wrote that the firm is maintaining its underperform rating for the automaker.

"The company will need to provide a more detailed capital plan for long-term growth, provide a more realistic picture of the backlog and demand picture, and continue to execute as the competitive environment heats up in 2019 in order for us to become more comfortable with the story," Osborne said.