By Michael Elkins
Shares of electric vehicle company, Tesla Inc (NASDAQ:TSLA) were down 1.49% at the close of trading on Monday after the electric vehicle company announced that they would be cutting the price of their popular Model 3 and Model Y by around 5%. The stock initially reacted sharply to the news, trading down about 7% at one point. But the stock was able to rebound near the end of trading.
Wolfe analysts wrote in a note, “We have been highlighting the possibility of price cut in China, as we’ve observed signs of slower growth for around 6 weeks now. In fact, speculation about potential price cuts on Social Media may have exacerbated this phenomenon...and we do see potential for other OEMs in China to follow suit.”
“While we can’t say that we like it” analysts continued, “this was at least predictable.” Wolfe believes that investors will eventually come back to TSLA as the company continues to be a driver for earnings growth. Analysts continue to believe that the electric vehicle giant will stack up well in this regard. “Said simply, Tesla was always going to have to reduce prices in all their key markets to support their aggressive volume growth target of 50% avg annual growth.”
Wolfe expects margin tailwinds to continue into 2023, 2024, and 2025, with up to $8,000 per vehicle of global cost reduction, and an additional margin tailwind in North America from the IRA.
Wolfe’s Q4 / 2023 EPS estimates go to $1.38 /$7.00 vs $1.46 / $7.13 previously.
Shares of TSLA are down 0.48% in pre-market trading on Tuesday.