Wed. Oct 4th, 2023
    Tesla’s Price Reduction Strategy Continues to Impact Profit Margins, says Goldman Sachs

    Goldman Sachs analysts have observed that Tesla’s series of price reductions throughout the year is expected to have a significant impact on the company’s profit margins. These price cuts, mainly targeted at Tesla’s Model S and Model X vehicles, are predicted to affect the company’s financial performance this year. Although increased prices for the Model 3 are expected to partially offset these reductions, it is still anticipated that the average selling prices across Tesla’s portfolio will decline, consequently affecting gross margins.

    Analyst Mark Delaney forecasts further price decreases by 2024, aiming to increase sales volumes. However, these reductions could potentially counterbalance the earnings per share (EPS) advantage gained from cost reductions. As a result, Goldman Sachs analysts have revised their EPS predictions for Tesla, including stock-based compensation. The projected EPS for this year has been lowered to $2.90, and the 2024 EPS forecast has been cut to $4.15.

    These revised forecasts are in line with the general market expectations. According to analysts tracked by FactSet, the consensus is an EPS of $2.89 for this year and an estimate of $4.50 for 2024. Despite these adjustments, Delaney still maintains his projection that Tesla will deliver around 2.3 million vehicles in 2024, surpassing the expected 1.8 million deliveries for this year, aligning with Wall Street estimates.

    Despite the potential impact on profit margins, Delaney is maintaining a Neutral rating for Tesla’s stock performance with a 12-month target price of $275. As of early trading on Monday, Tesla shares had declined by 2.5% to $267.51, despite a significant increase over the course of this year.

    Sources: Reuters, FactSet