started the new year with a bang by lowering the prices of its cars around the world. Now Wall Street is making its own cuts to 2023 earnings estimates.
Analysts agree that lower prices mean lower profits. Not everyone sees eye-to-eye on the extent of the price cuts’ impact on the company and its stock price.
Bernstein analyst Tony Sacconaghi claims the impact will be “huge”. He lowered his 2023 earnings estimate to $3.80 from $4.96. He believes that the price cuts were a response to reduced demand
‘s (ticker: TSLA ) electric vehicles, and he saw no evidence of an uptick in orders in China after Tesla cut prices on Jan. 6.
Insurance registration data outside China shows that about 13,000 Tesla vehicles were registered a week after the cut, up from about 2,000 a week before the cut. Insurance registration information, however, varies from week to week.
Sacconaghi rates Tesla stock sell and has a $150 price target on the stock. Wedbush analyst Dan Ives rates the stock a buy. His target is $175. He wrote on Friday that the price cuts are a prudent and smart strategic move as the economy weakens.
“This is a clear blow to European automakers and US stalwarts … Tesla will not play well in the sandbox with the ongoing EV price war,” Ives said. “Margins will take a hit on this, but we like this strategic poker move by Musk and Tesla.”
Ives has pegged earnings at $5.35 a share for 2023 and is looking ahead to how things will develop in the coming months. Costs are falling along with prices, and Ives claims the cuts could result in 12% to 15% more car sales this year. If the cost, price, volume equation doesn’t pan out as he expects, earnings per share could be in the $4.50 range in 2023, according to the analyst.
Deutsche Bank analyst Emmanuel Rosner also rates a buy on Tesla shares. Its earnings per share in 2023 are $3.80. Like Ives, he didn’t replace it after the cuts because he expected prices to drop. Rosner wrote on Friday that Tesla’s earnings per share could be as high as $4.50 in 2023, depending on how sales volume and customer willingness to buy higher-priced autonomous dive features change after the cuts.
Like Rosner, Wells Fargo analyst Colin Lang’s 2023 earnings per share estimate was $3.80 before price cuts. But Langan on Monday cut its 2023 earnings estimate to $2.90 a share.
Langan sees others in the industry following Tesla’s lead and lower prices leading to more EV sales, but the positives aren’t enough to outweigh the pressure on profit margins from lower prices. He rates the stock a hold and has a $130 price target on the stock.
BofA Securities analyst John Murphy also rates Tesla shares at Hold with a $130 price target. It lowered its 2023 earnings per share to $4 from $4.15. “Price is negative for margins, positive for growth,” Murphy wrote Tuesday.
About 25 analysts downgraded the numbers after the price cuts, according to FactSet. There are approximately 45 analysts covering the stock.
The consensus earnings per share estimate for 2023 is now around $4.90, up from $5.50 at the start of the year, according to FactSet. That’s under 60 cents. Some analysts are, of course, just guessing. If everyone were to cut estimates at the same rate, the consensus estimate for 2023 could fall by about $1 to $4.50 per share compared to late 2023 estimates.
Estimates range widely, from about $2.90 to about $8. Earlier in the year, the range of 2023 earnings estimates for Tesla was around $3.80 to $8.
Tesla’s 2023 earnings per share estimate reached about $6.10 in September. Estimates ranged from $4 to $12 a share at the time.
So far, investors are taking all the cuts seriously. Tesla shares closed up 7.4% at $131.49. The
Dow Jones Industrial Average
decreased by 0.2% and 1.1% respectively.
Tesla shares fell more than 6% in Friday trading in response to the U.S. price cuts. Shares rallied for the day and closed down about 0.9% at $122.40.
Barron’s He recently wrote positively about Tesla stock, arguing that the company is a leader in disruptive technology and that the stock has fallen enough to be attractive. The declines in vehicle prices and earnings estimates for 2023 were no surprise. Although there will be some surprises this year. The entire industry faces a lot of uncertainty amid rising interest rates and a weakening consumer economy.
When Tesla reports its fourth-quarter numbers on Jan. 25, investors will want answers to some questions about profit margins and demand.
Tesla shares are up nearly 16% since Tuesday’s trading Barron’s Positive article on January 6.
Email Al Root at firstname.lastname@example.org