Goldman Sachs Revises Tesla Earnings Forecast Amid Price Cuts

Analyst Mark Delaney Cautious on EPS as Tesla Pursues Production Boost and Price Adjustments

In a recent update, Goldman Sachs revised its earnings forecast for Tesla, highlighting concerns that the company’s price reductions may impact its earnings per share (EPS).

Goldman Sachs analyst Mark Delaney expressed his views, stating, “We believe that Tesla could further lower prices in 2024 to support higher volumes, which we believe will mitigate the EPS benefit from cost reductions.”

Delaney’s revised estimates suggest that Tesla is expected to report earnings of $2.90 and $4.15 per share for the remainder of 2023 and into 2024. This is a slight decrease from the previous estimates of $3.00 and $4.25 per share, respectively. The primary reason behind this downward revision is Tesla’s pursuit of higher production levels. Delaney anticipates that increased production could impact gross margins, even before considering state incentives and tax credits from the Inflation Reduction Act (IRA).

He explained further, saying, “We lower our 2023 and 2024 EPS estimates for Tesla, mostly on lower Average Selling Prices (ASPs) and, consequently, auto gross margin assumptions, excluding credits. This is driven by lower prices for the S/X models and, to a lesser extent, the Model Y, partially offset by higher ASP assumptions for the Model 3.”

The Goldman Sachs note points out that Tesla has significantly reduced prices for the S/X models by 15-19% since September 1st. Additionally, they reduced Model Y pricing in China in mid-August and have been offering discounts on inventory in other markets like the United States this quarter. However, Tesla has raised pricing on the Model 3 with the refreshed version (Highland) now available in Europe and China.

As of the current update, the Tesla Model 3 Highland remains unavailable in the United States and some parts of Europe, including the United Kingdom. The availability of the Model 3 Highland in the U.S. may be contingent on tax credits from the IRA. Initially, Tesla’s Model 3 Rear-Wheel Drive (RWD) and Long Range variants only qualified for $3,750 in IRA incentives due to their use of Chinese batteries. However, in June 2023, Tesla revised its Model 3 pricing strategy and decided to allocate vehicles with Chinese batteries to other markets.

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