Tesla Slashed Prices. Wall Street Is Cutting Earnings Estimates by This Much.

Text size Tesla is trying to increase demand by decreasing prices for its electric vehicles. Joe Raedle/Getty Images Tesla started the new year with a bang, cutting prices for its vehicles around the world. Now Wall Street is making its own cuts, to 2023 earnings estimates. Analysts seem to agree lower prices means lower profits. Not everyone sees eye to eye, however, on the magnitude of the impact that the price cuts will have on the company and its stock price. Bernstein analyst Toni Sacconaghi believes the impact will be “huge.” He cut his 2023 earnings estimate to $3.80 a share from $4.96. Sacconaghi believes the price cuts were in response to falling demand for Tesla (Ticker: TSLA) electric vehicles. He hasn’t seen evidence of a surge in orders in China after Tesla cut prices on Jan. 6. Insurance registration data out of China shows that about 13,000 Tesla vehicles were registered the week after the cut, up from about 2,000 vehicles the week before the cut. Insurance registration data, however, is volatile from week-to-week. Sacconaghi rates Tesla shares Sell and has a $150 price target for the stock. Wedbush analyst Dan Ives rates shares Buy. His price target is $175. He wrote Friday that the price cuts are prudent, and a smart strategic move, as the economy weakens. “This is a clear shot across the bow at European automakers and US stalwarts… that Tesla is not going to play nice in the sandbox with an EV price war now underway,” added Ives. “Margins will get hit on this, but we like this strategic poker move by Musk and Tesla.” Ives maintained his 2023 earnings estimate at $5.35 a share and is waiting to see how things develop in the coming months. Costs are falling, along with prices, and Ives believes the cuts could also result in 12% to 15% more vehicles being sold this year. If the cost, price, volume equation doesn’t work out as well as he expects, per share earnings could be in the $4.50 range for 2023, according to the analyst. Deutsche Bank analyst Emmanuel Rosner also rates Tesla shares Buy. His 2023 earnings per share estimate is $3.80. Like Ives, he didn’t change it after the cuts, because he expected prices to come down. Rosner wrote Friday that Tesla’s per share earnings could be as high as $4.50 in 2023 depending on how sales volumes and customers’ willingness to purchase higher priced autonomous diving features changes after the cuts. Like Rosner, Wells Fargo analyst Colin Langan’s 2023 earnings per share estimate was $3.80 before the price cuts. Langan, however, lowered his 2023 earnings esitmate to $2.90 a share on Monday. 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 pressure on profit margins from lower prices. He rates Share Hold and has a $130 price target for the stock. About 25 analysts have cut numbers since the price cuts. There are about 45 analysts covering the stock. The consensus 2023 per share earnings estimate now sits at about $4.90, down from about $5.50 at the start of the year, according to FactSet. That’s off 60 cents. Some analysts, of course, are holding the line on estimates. If everyone was cutting estimates at the same rate, the 2023 consensus estimate might be down about $1 to $4.50 a share compared with estimates from the end of 2023. The range of estimates is wide, going from about $2.90 to almost $8. At the start of the year, the range of 2023 earnings estimates for Tesla spanned about $3.80 to $8. Tesla’s 2023 earnings per share estimates peaked at about $6.10 a share in September. The range of estimates then was about $4 to $12 a share. So far, investors are taking all the cuts in stride. Tesla stock is up 1.8% in premarket trading Tuesday at $123.60. S&P 500 and Dow Jones Industrial Average futures are down about 0.2% and 0.1%, respectively. Tesla stock dropped more than 6% in Friday trading in response to the US price cuts. Shares gained over the course of the day and closed down about 0.9% at $122.40. Barron’s recently wrote positively about Tesla stock believing the company is the leader in a disruptive technology and that shares had fallen enough to become attractive. Vehicle pricing and 2023 earnings estimate cuts haven’t been a surprise. There will be some surprise this year though. The entire industry is facing a lot of uncertainty amid rising interest rates and a weakening consumer economy. Investors will want answers to some questions about profit margins and demand when Tesla reports fourth quarter numbers on Jan. 25. Tesla stock is up about 8% since Barron’s positive article on Jan. 6. Write to Al Root at allen.root@dowjones.com

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