Tesla sparks a price war, causing challenges for Ford and General Motors
Tesla’s decision to lower its prices has wide ramifications for the electric car industry – and may have started a price war. Tesla cut prices for the Model 3 and Model Y in the United States and Europe last Friday, which could help buyers qualify for more federal tax credits and increase sales volume. The Model 3 is Tesla’s entry-level sedan, while the Model Y is classified as an SUV or crossover. The company also lowered the price of its Model S sedan and Model X SUV in the U.S. “TSLA’s materials price cuts on Friday may force an industry-wide price correction,” Wells Fargo analyst Colin Langan wrote in a note on Tuesday. He added that the move will likely attract buyers who had not previously considered Tesla, and other automakers will have to respond. TSLA 1Y Mountain Tesla 12-month tranche. Still, Tesla has the upper hand when it comes to being able to afford those price cuts, Jefferies analyst Philippe Hoshua suggested. Jefferies has a Buy rating on Tesla and a price target of $180, which means up 47% from Friday’s close. “The aggressive round of price cuts reverses the 2022 price increases and will confirm that Tesla has more levers to pull than any other company.” [original equipment manufacturer] Given starting margins, capacity and opportunities to leverage growth in cost and revenue management,” Houchois wrote in a note on Tuesday. Tesla’s move also comes as existing automakers are raising prices, Bank of America analyst John Murphy explained. spur stronger demand, driving higher volumes and thus accelerating a shift away from internal combustion engine (ICE) vehicles,” Murphy wrote in a note on Tuesday. Both Langan-Murphy and Wells Fargo see a more challenging time ahead for Ford and GM as a result of Tesla’s price cuts. Ford EVs include the F-150 Lightning and Mustang Mach-E, while the Bolt is expected to join GM with the Blazer EV and Silverado EV later this year.Tesla has stronger profit margins than existing automakers, Murphy said. , which has a neutral rating on Tesla, and the potential for further price cuts.If Ford and GM respond with price cuts of 5%, versus Wells Fargo’s forecast of 2.5%, the bank will raise adjusted income before interest and taxes (EBIT) on the automakers, Langan said. It will decrease by about $3.5 billion.In addition, Ford and GM are building EV capacity.Given the potential for price cuts and therefore weak profit margins, they will now have to reassess those investments.We expect That continues F and GM a We will be on the current path, but will likely be at greater risk on the margins than we previously anticipated.” “Ultimately, these companies will have to look for ways to build electric vehicles that are more cost-efficient and focus on sectors where they may have unique advantages such as trucks and SUVs.” However, Societe Generale believes that Tesla’s price cuts remove some of the mystery that has surrounded it, and could refocus attention on positive moves by legacy automakers. Ultimately, it could lead to a reclassification for the likes of Mercedes-Benz, BMW, Volkswagen and Stelantis, analyst Stephen Reitman wrote in a note on Monday. “It’s not that Tesla has such an insurmountable lead that it’s over for the legacy automakers,” Reitman said. “2023 could be the year the market starts to appreciate that some legacy automakers have what it takes to be very successful in a zero-emissions world as well. Given their turbulent estimates, that could spur renewed interest in the segment.” Bank of America’s Murphy writes that one of the clear winners from strong demand for electric vehicles is auto suppliers. Murphy’s latest report in response to Tesla’s decision did not highlight any specific recipients among the auto suppliers, but it currently holds Buy ratings on Adient and Lear. TSLA analysts were also quick to point out that Tesla’s price cuts will undoubtedly affect its bottom line. Bernstein analyst Tony Sacconaghi lowered his 2023 earnings-per-share estimate to $3.80 from $4.96, saying lower Tesla prices would have a “huge” impact on Tesla’s economics. “We are still torn about TSLA stock,” wrote Sakunagi, who has a poor rating on the stock. Its $150 price target implies an upside of 23% from Friday’s close. The stock is now trading close to Bernstein’s discounted cash flow estimate for 2050 of $120 per share, investor sentiment is weak, and if the consensus numbers are reset appropriately, there could be limited downside risk to the estimates. However, it is unclear whether the consensus numbers will be sufficiently reset and whether Tesla will continue to suffer from demand issues throughout the year. The recent demand challenges also raise questions about whether the long-term outlook for Tesla’s market share and margins may be Well. High,” Sakunagi said in a note on Tuesday. — CNBC’s Michael Blum and Laura Kolodny contributed reporting.