Tesla sparks a price war that poses challenges for Ford and GM
Tesla’s decision to cut prices has far-reaching implications for the electric vehicle industry — and may have sparked a price war. Tesla last Friday cut prices for the Model 3 and Model Y in the US and Europe, which could help buyers qualify for more federal tax credits and boost sales volume. The Model 3 is Tesla’s entry-level sedan, while the Model Y was classified as either a sport utility vehicle or a crossover. The company also lowered the price of its Model S sedan and Model X SUV with hawk wings in the United States. “TSLA’s material price cuts on Friday could force an industry-wide price correction,” Wells Fargo analyst Colin Langan wrote in a note Tuesday. The move is likely to attract buyers who have not previously considered Tesla, and other automakers will need to respond, he added. TSLA 1Y Mountain Tesla’s 12 Month Dia. Still, Tesla has the upper hand when it comes to affording those price cuts, suggested Jefferies analyst Philippe Houchois. Jefferies has a buy rating on Tesla and a price target of $180, up 47% from Friday’s close. “The aggressive round of price cuts reverses 2022 price increases and would confirm that Tesla has more leverage than anyone else [original equipment manufacturer] Given the startup margins, capacity and opportunities to leverage growth for cost and revenue management,” Houchois wrote in a note Tuesday. Tesla’s move also comes as incumbent automakers have been raising prices, Bank of America analyst John Murphy pointed out. “Lower electric vehicle prices could spur stronger demand, driving higher volumes and thereby accelerating the move away from internal combustion engine (ICE) vehicles,” Murphy wrote in a note Tuesday. Both Murphy and Langan of Wells Fargo see more challenging times ahead for Ford and General Motors as a result of Tesla’s price cuts. Ford electric vehicles include the F-150 Lightning and Mustang Mach-E, while GM’s Bolt is expected to be joined by a Blazer EV and Silverado EV later this year. Tesla has higher profit margins than incumbent automakers, and there’s room to cut prices further, said Murphy, who is neutral on Tesla. If Ford and GM respond with their own price cuts of 5%, versus Wells Fargo’s forecast of 2.5% The bank a Automakers’ adjusted estimates of earnings before interest and taxes (EBIT) would fall by about $3.5 billion, Langan said. In addition, Ford and GM are expanding EV capacity. Given the potential for price cuts and therefore weaker margins, they now need to reevaluate these investments, Bank of America’s Murphy added. “We expect F and GM to continue on the current path, but likely at greater risk to margins than we previously anticipated,” he said. “Ultimately, these companies need to look for ways to build EVs even more cost-effectively and focus on segments where they may have unique advantages, such as trucks and SUVs.” But Societe Generale believes Tesla’s price cuts are removing some of the mysteries that have surrounded it and could draw attention back to positive moves by legacy automakers. Ultimately, this could lead to a re-rating of companies like Mercedes-Benz, BMW, Volkswagen and Stellantis, analyst Stephen Reitman wrote in a note Monday. “It’s not like Tesla has such an insurmountable lead that it’s game over for the legacy automakers,” Reitman said. “2023 could be the year when the market starts to realize that some long-established automakers have what it takes to be very successful even in a zero-emission world. Auto parts suppliers are a clear winner of stronger demand for electric vehicles, Bank of America’s Murphy wrote. Murphy’s most recent report, responding to the Tesla decision, didn’t single out any specific beneficiaries among the auto parts suppliers, but he currently has buy recommendations for Adient and Lear. “Torn” at TSLA Analysts were also quick to point out that Tesla’s price cuts will undoubtedly affect its own bottom line. Bernstein analyst Toni Sacconaghi cut his estimate of 2023 earnings per share to $3.80 from $4.96 and said Tesla’s lower prices will have a “huge” impact on Tesla’s economy . “We remain conflicted about TSLA stock,” wrote Sacconaghi, who has an underperform rating on the stock. Its price target of $150 implies a 23% increase from Friday’s close. The stock is now trading near Bernstein’s discounted cash flow estimate for 2050 of $120 per share, investor sentiment is poor and if consensus numbers reset accordingly, downside risk to the estimates could be limited, he said. “However, it is unclear whether the consensus numbers will be rolled back sufficiently and whether Tesla may still face demand issues later in the year. Recent demand challenges also raise questions as to whether long-term projections for Tesla’s market share and margins could also be high,” Sacconaghi said in Tuesday’s note. — CNBC’s Michael Bloom and Lora Kolodny contributed to the coverage.
https://www.cnbc.com/2023/01/17/winners-and-losers-in-the-ev-space-as-tesla-ignites-a-price-war.html Tesla sparks a price war that poses challenges for Ford and GM
