Tesla Inc.’s recent price cuts are unlikely to be the last, and they put margins in the spotlight with the electric-vehicle maker set to report quarterly earnings soon.
That’s from analysts at Bernstein and Citi on Monday, commenting on further Tesla price cuts on Friday. Base prices for the Model S and Model X each came down by about $5,000, among other cuts, and Tesla also began offering a cheaper, shorter-range Model Y compact SUV.
“Make no mistake — the price cuts reflect Tesla’s need to stimulate demand and arean explicit trade off of margins for volume,” Bernstein’s Toni Sacconaghi said. “While many investors have been hopeful that [first-quarter] margins might be bottom, we don’t believe that will necessarily be the case, particularly given our belief that further cuts are likely.”
Chief Executive Elon Musk said in late January that orders were twice Tesla’s production capacity after price cuts in early January, “and yet [first-quarter] deliveries lagged production, pointing to a significant deceleration in orders over the quarter,” Sacconaghi said.
“We believe additional price cuts in other geographies are likely. We note that lead times were relatively weak (<4 weeks) for nearly all Tesla models in all geographies, except for the Model Y in the U.S.," he said. "The fact that Tesla is cutting price on its longest lead-time model suggests other price cuts are likely to follow," particularlyas Model 3 rebates will fall to $3,750 next week “and competition continues to intensify.”
Itay Michaeli at Citi echoed the sentiment that the recent price cuts “will place even greater emphasis on the [first-quarter] auto gross margin outcome as a determinant of (near-term) sentiment.”
Stronger-than-expected margins “would support the contention that Tesla’s latest price cuts are coming from a position of cost strength while also possibly reflecting lower input costs,” Michaeli said.
In-line or softer gross margins “could revive concerns over capacity/product aging while placing 2023 consensus estimates at risk,” the Citi analyst said.
Tesla is scheduled to report first-quarter earnings next Wednesday, with a call following results scheduled for 5:30 p.m. Eastern time.
Analysts polled by FactSet expect the EV maker to report adjusted earnings of 86 cents a share on sales of $23.8 billion. That would compare with adjusted EPS of $1.07 a share on sales of $18.8 billion in the first quarter of 2022.
Tesla stock has lost 47% in the past year, compared with losses of about 9% for the S&P 500 SPX, -0.58% in the same period.
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