Analysts debate outlook for Tesla amid price cuts
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Multiple analysts reined in 2023 margin estimates for Tesla (NASDAQ:TSLA) as the automaker continues to trim prices across key markets. Although a contrarian contingent is keen to argue that lowered prices are key to promoting market share gains.

The latest round of discounts range from 6% to 20% for Model 3, Model Y and various performance models sold in the US and Europe. The new sticker prices come after the EV leader lowered prices in the Chinese market by 13% to 24% including recent incentives earlier in January.

The new price cuts, while allowing buyers to take advantage of IRA credits, have sparked margin concerns among analysts, many of whom reined in estimates ahead of the Austin-based companyâs earnings release later this month. In fact, Guggenheim Securities downgraded the stock to Sell from Neutral on Friday.

âOverall, heading into a challenging backdrop in FY23, we believe TSLA had to decide whether to sacrifice volume growth or gross margins, and based on pricing actions, the answer appears to be gross margins,â Guggenheimâs analysts told clients. âThis creates a difficult narrative for a stock still trading at ~30x our FY23 estimates, which we now forecast to grow at just a ~10% CAGR over the next 3 years. Finally, TSLA pricing actions taken yesterday are a negative for all
OEMs and lowers the overall profit pool, in our view.â

He assigned an $89 price target to the stock alongside the downgrade.

Similarly, Evercore ISI noted that while the steep discount will help sustain demand, it will have âa significant impact to TSLAâs near term gross margin,â likely causing EPS to miss expectations. The team now anticipates 2023 EPS to tick in around $3 to $3.50, well below the current consensus of $4.05.

Shares of Tesla (TSLA) fell over 5% to an intraday low of $115.60 on Friday before rebounding slightly into afternoon trading.

To be sure, not all analysts were pessimistic on the dramatic price reductions. For example, both Wedbush analyst Dan Ives and Morgan Stanleyâs Adam Jonas advised clients that the steep price cuts are a way for the Elon Musk-led company to âflex its musclesâ and put pressure on competitors.

âIn an environment of EV deflation, we believe Teslaâs strong balance sheet, cost/technology leadership and scale will be critical to solidifying their competitive advantage,â Jonas told clients on Friday. âWithin a painful reset of EV expectations globally, we see Tesla as a winner and reiterate our [Overweight] rating.â

The continued prioritization of volume over margins by the automaker was forecast earlier this week by Seeking Alpha contributor Bill Maurer. 
âThe company started to reduce pricing in China and offer incentives in other countries to help with sales, but these efforts weren't enough to meet Q4 delivery expectations. This year will be a very different one for the automaker, however, as more price cuts will likely be needed to drive delivery volume growth in a meaningful way,â he wrote on Wednesday.