By Michael Elkins
Evercore ISI reiterates an In Line rating and $140.00 price target on Tesla (NASDAQ:TSLA) following the company’s latest price cuts. The company dramatically cut prices overnight by a weighted avg. ~$10k or 16% on Model 3s and Ys to make most of their U.S. offerings eligible for a $7.5k US/IRA consumer credit. Combining this U.S. cut and next 2-month IRA of $7.5k (moving to $3.75k mid-March), the starting price of Model Y, to consumer, has fallen ~$20.5k in the last 24 hours ($66k to $45.5k).
Analysts believe that there will be a significant impact to TSLA’s near-term Gross Margin following these cuts, it all depends on how long these new price levels last. Assuming a partial year impact of 30%-50% of the year before half of the cut reverses, they see something like $3-$3.50 EPS in 2023, or an additional $1.10-$1.50 EPS cut to Evercore’s recently lowered $4.60 EPS. $3-$3.50 would be 30%-40% below the consensus.
While most investor attention has been focused on China, TSLA’s U.S. backlog has also been falling due to a combination of increasing production and 4Q buyer strike from anticipated 2023 IRA credits. However, the analysts wrote in a note that “Over the last 2 weeks, while digging into the details of the IRA/IRS ruling, it started to occur to us that if we were having a tough time understanding who got what (e.g., no eligibility for Model Y or GM’s Lyriq due to non-SUV classification), imagine how confusing it was to a dealer or a consumer!! A few calls to some dealers…cleared that up….NO ONE HAD ANY IDEA WHAT WAS GOING ON. Online TSLA trackers also started to flag rising Model Y US inventory and negligible orders to start the year.”
Shares of TSLA are down 6% in pre-market trading on Friday.