Goldman Sachs has revised downward its earnings forecast for Tesla, stating that the electric vehicle (EV) company’s decision to lower prices could impact its earnings per share (EPS). In a note released by Goldman Sachs analyst Mark Delaney, he explained that Tesla’s potential future price reductions to support higher volumes may mitigate the EPS benefit from cost reductions.
Delaney forecasts that Tesla will report earnings of $2.90 and $4.15 per share for the remainder of 2023 and into 2024, respectively. These figures are slightly lower than the previous estimates of $3.00 and $4.25 per share. The downgrade is primarily due to Tesla’s focus on increasing production, which is expected to affect gross margins before factoring in state incentives and tax credits from the Inflation Reduction Act (IRA).
One factor contributing to the decrease in earnings is Tesla’s recent price cuts for its various models. The company reduced pricing for the Model S, Model X, and Model Y in certain markets, while simultaneously increasing the pricing for the refreshed Model 3 in Europe and China. These pricing adjustments have impacted average selling prices (ASPs) and auto gross margin ex-credit assumptions.
One model that has undergone changes in pricing and availability is the Tesla Model 3 Highland. Currently, this model is unavailable in the United States and some parts of Europe, including the United Kingdom. Its availability in the U.S. is likely dependent on tax credits from the IRA. Previously, Tesla’s Model 3 RWD and Long Range units qualified for $3,750 in IRA incentives, but the company decided to reserve vehicles using Chinese batteries for other markets, resulting in pricing adjustments.
Despite the revised earnings forecast, Delaney maintained a neutral rating on Tesla and reiterated a price target of $275 for TSLA.
Source: Goldman Sachs, Maria Merano, Teslarati.com (source article without URL)