Analysts seem to agree that lower prices mean lower profits. However, not everyone agrees on how big of an impact the price cuts will have on the company and its stock price.
Bernstein Analyst Tony Sacconaghi says the impact will be “enormous”. It cut its 2023 earnings estimate to $3.80 per share from $4.96. He believes the price cuts were in response to lower demand for
‘s (ticker: TSLA) electric vehicles, and he hasn’t seen evidence of an increase in orders in China after Tesla cut prices on January 6.
Insurance registration data from China shows around 13,000 Tesla vehicles were registered the week after the shutdown, compared to around 2,000 vehicles the week before the shutdown. Insurance registration data, however, is volatile from week to week.
Sacconaghi rates Tesla shares for sale and has a price target of $150 for the stock. Wedbush Analyst Dan Ives Share rate Buy. Its price target is $175. He wrote on Friday that the price cuts are prudent and a smart strategic move as the economy weakens.
“It’s a clear blow to European automakers and US stalwarts … that Tesla won’t play well in the sandbox with an ongoing electric vehicle price war,” Ives added. “Margins will be hit, but we like this strategic poker move from Musk and Tesla.”
Ives kept his 2023 earnings estimate at $5.35 per share and is waiting to see how things develop in the months ahead. Costs are falling, along with prices, and Ives says the cuts could also lead to 12% to 15% more vehicles being sold this year. If the cost, price and volume equation doesn’t work out as well as he expects, earnings per share could be in the $4.50 range for 2023, the analyst says.
Deutsche Bank Analyst Emmanuel Rosner also rates Tesla Buy shares. Its earnings per share estimate for 2023 is $3.80. Like Ives, he didn’t change it after the cuts because he expected prices to fall. Rosner wrote on Friday that Tesla’s earnings per share could reach $4.50 in 2023 depending on how sales volumes change and customers’ willingness to buy scuba diving features at higher prices after the discounts.
Like Wells Fargo analyst Rosner Colin Langan The earnings per share estimate for 2023 was $3.80 before price cuts. Langan, however, on Monday lowered its 2023 earnings estimate to $2.90 per share.
Langan sees others in the industry following Tesla’s lead and lower prices leading to increased EV sales, but the positives aren’t enough to outweigh the pressure on profit margins from lower prices. He rates the Hold stock and has a price target of $130 for the stock.
BofA Securities analyst John Murphy also rates Tesla stock at Hold with a price target of $130. It cut its estimate of earnings per share for 2023 to $4 from $4.15. “Price declines are negative for margins, positive for growth,” Murphy wrote on Tuesday.
About 25 analysts have cut the numbers since the price cuts, according to FactSet. There are around 45 analysts covering the stock.
The consensus earnings-per-share estimate for 2023 now stands at around $4.90, down from around $5.50 at the start of the year, according to FactSet. It’s less than 60 cents. Some analysts, of course, hold the line on the estimates. If everyone cut estimates at the same rate, the 2023 consensus estimate could be down about $1 to $4.50 per share from the end-2023 estimate.
The range of estimates is wide, ranging from around $2.90 to almost $8. At the start of the year, Tesla’s 2023 earnings estimate range was around $3.80 to $8.
Tesla earnings per share estimates for 2023 peaked at around $6.10 per share in September. The range of estimates then was around $4 to $12 per share.
So far, investors accept all the cuts in stride. Tesla stock closed 7.4% higher at $131.49. The
fell 0.2% and 1.1%, respectively.
Tesla stock fell more than 6% on Friday in response to price cuts in the United States. Shares gained during the day and closed around 0.9% lower at $122.40.
Barrons recently wrote positively about Tesla shares, arguing that the company is a leader in disruptive technology and that the shares had fallen enough to become attractive. Vehicle prices and earnings estimate cuts for 2023 came as no surprise. However, there will be a few surprises this year. The industry as a whole faces a lot of uncertainty amid rising interest rates and a weakening consumer economy.
Investors will want answers to some questions about profit margins and demand when Tesla releases fourth quarter numbers on Jan. 25.
Through Tuesday, Tesla stock is up about 16% since Barrons positive article from January 6th.
Write to Al Root at [email protected]