By Michael Elkins
RBC Capital reiterated an Outperform rating on Tesla (NASDAQ:TSLA) and cut their price target on the stock to $217.00 (From $223.00) as concerns are mounting that the electric vehicle maker may need to cut prices again to remain competitive.
RBC Capital’s expectations are for Tesla’s Automotive Gross Margins to be pressured by price cuts. TSLA made multiple price cuts during the quarter, and RBC estimates the base model pricing is down 10-20% globally, though this should not all be felt in Q1/23 due to timing of the cuts.
RBC analysts wrote in a note, “The January price cuts are having a strong positive impact globally as evidenced by robust Q1/23 sales. China sales response is a bit more muted which we attribute to normal seasonality (Chinese New Year) and the end of tax incentives that we believe brought forward demand. However, an ongoing price war in China is creating concern that Tesla will need to cut pricing again to remain competitive and we expect the recent U.S. price cuts to draw additional questions around the demand outlook. Separately, we expect a focus on progress on 4680 cells.”
Longer term, RBC Capital continues to be buyer of TSLA. The company’s better cost structure, vertical integration, and advantages on batteries mean they are better positioned to compete on price and continue to grow market share. Moreover, Austin and Berlin ramping should help reduce costs and the energy/storage business profitability is improving.
RBC’s Q1/23 revenue estimate of ~ $22.5B compares to consensus at $23.5B. Diluted adjusted EPS estimate of $0.92 is above the consensus estimate of $0.86.
Shares of TSLA are down 2.14% in pre-market trading on Wednesday.