Tesla (TSLA) dropped the bombshell on the auto market with huge price cuts last week, and now Wall Street is catching up with post-game analysis, if you will.
In a note titled “Analyzing the Impact of Reduced Tesla Vehicle Prices,” Goldman Sachs analyst Mark Delaney takes a half-empty, half-full approach.
According to Delaney, the price cuts imply concerns about lower demand in the US
“While the reduced prices for the Model 3 and Y help the company better target the approximately 20% to 30% of vehicles sold in the U.S. market in the $40,000 to $55,000 price range, the price cuts also imply that the recent orders tracked have been weak,” Delaney wrote in a note to customers. “We are therefore lowering our EPS estimates to reduced ASPs (average selling price).”
On the other hand, discounted prices will boost the volume of vehicles sold, and factoring in Tesla’s giga factory expansions (Shanghai and reportedly Austin) and ramp-ups, the automaker may actually be able to weather any drop in retail prices with improved efficiency.
“We see [stronger volumes] equally important to Tesla’s vertically integrated model, especially given that its new factories are likely to offer an attractive large-scale unit economy (we believe the COGS per vehicle in the new Austin and Berlin factories will be closer to Shanghai than Fremont and in the low to mid-range will be $30,000 per vehicle range),” Delaney said.
Additionally, Delaney believes that higher volumes can act as leverage for more “monetization opportunities” as Tesla can market high-margin software and service offerings to new customers.
After all, Tesla’s size and unit economics are a major competitive advantage over traditional automakers, Delaney says, and any increase in volume is a net negative for its competitors. “The strategic implications of the price cuts (and the fact that we think investors have already anticipated at least some price cuts) are likely contributing to stock reactions on Jan 13 with Tesla shares down 1% (flat vs. S&P 500 ) to explain ahead of competitors like Ford (-5%), GM (-5%) and RIVN (-6%),” noted Delaney.
The story goes on
The added pressure on Tesla’s competitors from the discounted prices of the Model 3 and Model Y, combined with the IRA tax credits now available on most of these vehicle versions, means that competitors are under even more pressure. With the new prices, Tesla’s Model 3 and Y perform very well against the competition, Delaney said.
Goldman on the Tesla Model Y versus the competition
Delaney notes that negative margins for Tesla competitors, along with the limited availability of competitor electric vehicle offerings, are another factor for Tesla.
That being said, last week dropped a bombshell on the auto market with huge price cuts, and now Wall Street is catching up with post-game analysis, if you will. Ps come from the price cuts.
Pras Subramanian is a reporter for Yahoo Finance. you can follow him Twitter and further Instagram.
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