Wells Fargo sizes up Tesla’s aim to manufacture lower cost vehicles
RoschetzkyIstockPhoto/iStock Editorial via Getty Images

Wells Fargo analyst Colin Langan told clients on Friday that expectations are high for Teslaâs investor day on March 1, especially in regards to the expected announcement of a lower cost EV. However, he noted that producing a cheaper vehicle with the automakerâs typically elevated margins could be a major challenge.

Tesla (NASDAQ:TSLA) is due to host an investor event at its Giga Texas factory on Wednesday, with its âMaster Plan 3â due for release. This long-term plan is expected to include the unveiling of a third generation vehicle platform that will allow for the release of a lower cost vehicle at around a $25K to $30K price point.

While Langan sees this as prudent in terms of expanding Teslaâs market share, the timing and margin impact of this potential release remains a question mark. He said that âcredible profit/cost targets and launch timing are keyâ for Elon Musk to address on Wednesday. On that front, he also questioned the companyâs ability to cut costs sufficiently to release such a low cost vehicle.

âWith much of the interior, body, and infotainment already simplified, the targets to get to a 20% gross margin aren't easy,â he explained. âWe also highlight our global powertrain estimate reflects TSLA's blended mix of battery chemistries (NCA & LFP) and the benefit of LT raw material contracts. The estimated cost of the Model Y we tore down was over $20K.â

Langan reiterated an Equal-Weight rating on the stock and a $190 price target, up from a prior $150 target.

âWe see modest upside near term from deliveries and likely benefits from added US EV credits. However, we see near-term risks around pricing and possible increased US regulation on Autopilot,â he concluded from a broader investment standpoint, zooming out from the investor day. âMid-term we are cautious TSLA will have sufficient Model 3/Y demand to meet the large amount of added capacity.â

Shares of the Austin-based automaker fell 3.88% on Friday.
Read more on why Seeking Alpha contributor Wrightâs Researchâs view of BYDâs lead over Tesla in China.