Bank of America: Tesla’s price cuts have both advantages and disadvantages

Tesla’s recent price cuts on its electric vehicles will lead to higher sales growth in 2023, Bank of America said on Tuesday.

Financial Associated Press, January 18 (Editor Zhou Ziyi) According to Bank of America on Tuesday, Tesla’s recent price cuts on electric vehicles will lead to higher sales growth in 2023.

Bank of America strategists said in a note on Tuesday that while Tesla cut the prices of the Model 3 and Model Y in the U.S. by between 6% and 20% in January, which would further depress profit margins, the move That could boost sales by 53% this year.

That’s more than three times Bank of America’s previous estimate of a 17 percent growth rate, and it beats the 50 percent growth target set by Tesla CEO Elon Musk.

“This would bring total revenues to $100 billion in 2023, an 18% increase over our previous forecast model,” the BofA strategists wrote.

Adverse effects of price cuts

The bank predicts that Tesla’s profit per vehicle sold may be reduced by 10% to 20%, with further profit cuts in the next two years. Based on this, BofA lowered its EPS forecast for 2023 and 2024.

The report also mentioned that although sales growth may lead to an average profit margin increase of 30%, this will be offset by the adverse impact of price cuts. to $130, up from $135.

However, Bank of America noted that Tesla’s valuation remains reasonable and maintained a neutral rating on the stock.

As of Tuesday, Tesla stock closed up 7.43% to $131.49 per share.

Tesla faces many difficulties

BofA strategists noted that the company’s self-funding profile is unique in the EV industry, but not as compelling among traditional automakers. Tesla also faces many obstacles in the near future, including rising interest rates, a grim macro environment, and potential risks in the electric vehicle market.

Combined with Musk’s distraction from the Twitter acquisition, Bank of America said it was “appropriate” to maintain Tesla’s Neutral rating on the stock.

Also on Tuesday, Wall Street investment bank Jefferies lowered its target price on Tesla stock by 49% from $350 to $180, but maintained a buy rating on the stock. It lowered Tesla’s 2023 sales forecast by about 15% to 1.74 million vehicles, which is equivalent to a 33% increase in 2023 from the previous year, far more conservative than Bank of America.

The investment bank, which has long been bullish on Tesla, said the company’s recent price cuts would support a broader goal of making electric vehicles more affordable.

“We firmly believe Tesla will lead the industry toward a better business model, although the trajectory is bumpier than we thought,” Jefferies equity analyst Philippe Houchois wrote in a note.