Tesla, Inc. TSLA reduced the prices of its vehicles by about 6.7%-19.7% on Friday.
The Tesla Analysts: Wedbush analyst Daniel Ives maintained an Outperform rating and $175 price target on Tesla shares.
Guggenheim analyst Ronald Jewsikow downgraded Tesla shares from Neutral to Sell and assigned an $89 price target.
Tesla Has Margin Flexibility To Cut Prices, Ives Says: Demand for Tesla vehicles is seeing some cracks amid the slowdown in global growth in 2023, Ives said in the note. The price cuts in China on Jan. 6 are now being followed up by “eye-popping” U.S./Europe price reductions, he said.
“While the initial reaction to these cuts will naturally be negative on the Street at first, we believe this was the right strategic poker move by Musk & Co. at the right time,” the analyst said.
Tesla now has margin flexibility to make aggressive moves such as this to gain further market share in the electric vehicle arms race, as it now has a global scale with Giga factories in Austin, Berlin and further China build-out, Ives said.
See also: Everything You Need To Know About Tesla Stock
The base Model Y vehicle now becomes eligible for federal tax credits and this will serve as a further tailwind, he said.
Ives sees the move as stimulating demand.
“We believe all together these price cuts could spur demand/deliveries by 12%-15% globally in 2023 and shows Tesla and Musk are going on the 'offensive' to spur demand in a softening backdrop,” he said.
The move, according to the analyst, is a clear shot at European automakers and U.S. legacy companies General Motor Corp. GM and Ford Motor Co. F. Margins will get hit, the analyst said, adding that he likes this “strategic poker move by Musk and Tesla.”
3 Reasons For Guggenheim's Downgrade: Guggenheim's Jewsikow premised the downgrade on:
- Expectations for a "sizable" fourth-quarter gross margin miss.
- The need for taking down margin assumptions for the full year due to the U.S. price cuts and potential cuts in Europe.
- Demand key performance indicators such as declining wait times in Europe and used Tesla car prices declining three times faster than the market over the last three months.
The investor day scheduled for March 1, according to the analyst, could swing sentiment positive due to the potential announcement or even a reveal of a low-priced vehicle in the $25,000-$30,000 price range. The commercial launch could be most likely in 2025, he added.
Going by the price cuts, Tesla seems to have favored volume over margins, and this creates a difficult narrative for a stock, Jewsikow said.
Munster Says Tesla Competitors In Tight Spot: Loup Fund's Gene Munster sees the price reductions as a win for consumers and Tesla’s brand. Tesla will likely gain market share in the near term, which in turn has long-term market share benefits as the EV market ramps, he said.
"Tesla is putting competitors in a tight spot," the analyst-turned-tech venture capitalist said. If competitors lower prices to compete, they lose money, and if they keep prices high, they lose market share, he said.
Potential customers will do well to wait a couple of months as prices come down, Munster said.
TSLA Price Action: Tesla shares were down 4.96% at $117.43 Friday morning, according to Benzinga Pro data.
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Photo courtesy of Tesla.
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